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Business  Insurance  Instructor 


By  FORBES  LINDSAY 


Complete  in  Four  Sections 
General  Principles  and  Fundamental  Knowledge 
Business  Insurance  for  Corporations  and  Firms 

Business  Insurance  for  Proprietorship,  Farmers 
Individuals  and  Various  Institutions 

Methods  of  Canvassing  Business  Insurance,  Various 
Supplementary  Data  and  Form  Letters 


FORBES  LINDSAY  SALES  SERVICE 

317  CENTRAL  AVENUE 
LOS  ANGELES,  CALIF. 


Copyright,  1922,  by  Forbes  Lindsay, 


SECTION  ONE 


General  Principles 

and 

Fundamental  Knowledge 


^)2I  i>^>9 


Contents 


SECTION  ONE 

Preliminary  Survey — The  supreme  value  of  the 
human  asset — Example  of  its  operation  as  the  profit 
factor  in  business — Selection  of  valuable  lives  to  be 
covered  by  insurance — Illustration — Pointed  ex- 
pression by  an  officer  of  a  mercantile  agency — Mis- 
conception as  to  prospects  for  Business  Insurance^ 
Relation  of  Business  Insurance  to  domestic  insur- 
ance —  How  Business  Insurance  conserves  and 
develops. 

What  Is  "Business  Insurance" — A  comprehen- 
sive definition  of  the  term — Two  broad  divisions  of 
Business  Insurance  and  peculiarities  of  each — Ad- 
vantages of  specializing  in  Business  Insurance. 

Preparation  for  Dealing  with  Organizations- 
Qualifications  necessary  for  working  among  large 
concerns — Knowledge  that  should  be  possessed  by 
agent  canvassing  corporations — The  value  of  mer- 
cantile agency  reports. 

Fundamental  Knowledge — Character  of  informa- 
tion to  be  gained  from  books  on  corporation  finance 
—Good-will  described— Depreciation,  its  nature  and 
methods  of  providing  for  it— Uses  of  Endowment 
Insurance  as  a  sinking  fund — Bonds  and  Business 
Insurance — Capital,  its  nature  and  functions. 

Various  Forms  of  Business  Enterprises — Differ- 
ent degrees  of  risk  assumed  by  persons  interested  in 
them — Proprietorship  or  one-man  concern — Liabil- 


ity  of  the  sole  owner — Advantages  and  disadvan- 
tages of  proprietorship — Partnership  or  firm,  its 
nature  and  pecuHar  features — Joint-stock  company, 
its  distinctive  characteristics — Corporation,  its  char- 
acter—  "Close  corporation,"  the  adaptabiHty  of 
Business  Insurance  to  fill  its  chief  need — ConsoHda- 
tions  and  reorganizations  create  prospects  for  Busi- 
ness Insurance. 

Business  Insurance  as  a  Credit  Stabilizer — Strik- 
ing statement  of  Harriman  National  Bank — Perti- 
nent statistics  from  "Bradstreet's  Business  Mortal- 
ity" and  the  magazine,  "System" — Inquiry  as  to 
Business  Insurance  in  credit  forms  of  Federal  Re- 
serve Banks,  American  Bankers'  Association,  and 
Credit  Men's  Association. 

Banking  and  Trade  Credits — The  nature  of  each 
described — Relation  of  Business  Insurance  to  cred- 
its— Concrete  example  of  credit  fortified  by  Business 
Insurance — Illustration  of  Business  Insurance  in 
connection  with  a  manufacturing  concern — Retail 
credit  and  the  principles  governing  it — Explanation 
of  the  actual  effect  of  Business  Insurance  upop 
credit. 


BUSINESS  INSURANCE 
Preliminary  Survey 

THE  typical  modern  business  enterprise  is  con- 
ducted along  conservative  lines  and  protected 
agfainst   the   consequences   of   adverse   contin- 
gencies.   The  haphazard  practice  of  taking  chances 
and  trusting  to  luck  is  a  thing  of  the  past. 

It  has  been  found  by  experience  that  insurance 
in  its  various  forms  furnishes  the  most  effectual 
and  economical  means  of  safeguarding  from  injuri- 
ous effects  of  mishaps.  So,  the  up-to-date  concern 
arranges  for  indemnity  in  case  of  fire,  embezzle- 
ment, accident  and  various  other  losses. 

Of  course,  the  fundamental  purpose  of  any  kind 
of  insurance  is  to  indemnify  for  the  loss  or  impair- 
ment of  a  valuable  asset.  Strangely  enough,  busi- 
ness concerns  carried  insurance  to  cover  the  less 
serious  and  more  reparable  classes  of  casualties 
long  before  they  awoke  to  an  appreciation  of  life 
insurance  as  a  source  of  compensation  for  what  is 
generally  the  greatest  misfortune  that  may  befall  a 
firm  or  corporation. 

The  human  asset  is  by  far  the  most  valuable  pos- 
session of  a  going  concern.  This  truth  may  be 
rendered  more  apparent  by  an  illustration.  Suppos- 
ing a  corporation  having  $250,000  of  working 
capital  to  realize  $50,000  clear  profit  in  a  year. 
The  normal  earning  power  of  money  is  about  5  per 
cent,  but  here  we  have  20  per  cent.  The  additional 
15  per  cent  earned  is  clearly  attributable  to  the 
ability  of  the  men  who  directed  the  employment  of 
the  concern's  working  capital.    The  human  element 


10  BUSINESS  INSURANCE  INSTRUCTOR 

represents  the  profit  factor  in  every  business.  So 
that,  when  a  company  puts  fire  insurance  on  its 
building  or  stock,  bonds  its  cashier  and  takes  other 
precautions,  whilst  neglecting  to  cover  the  lives  of 
executives  upon  whom  its  prosperity  depends,  it  is 
merely  closing  the  windows  and  leaving  the  door 
wide  open  to  serious  loss.  And  what  is  true  of  the 
largest  corporation  applies  to  every  business  down 
to  the  village  grocery. 

It  has  been  said  that  the  human  asset  is  the  most 
valuable  possession  of  a  business  concern,  but  that 
statement  needs  qualification.  The  majority  of  per- 
sons on  a  company's  payroll  do  not  earn  more  than 
their  salaries  and  could  easily  be  replaced.  Large 
profits  are  produced  by  the  ability  of  a  few,  whose 
places  it  would  be  difficult  to  refill.  These  are  the 
lives  that  should  be  covered  by  life  insurance.  The 
agent  must  ascertain  by  inquiry  who  are  the  extra- 
valuable  officers  or  employes.  It  will  not  do  to 
guess.  Not  infrequently  the  president  is  in  the 
former  class,  whilst  some  comparatively  obscure  in- 
dividual is  in  the  latter.  For  example,  the  head  of  a 
prominent  investment  house  contributes  little  but 
capital  to  the  business,  whereas  an  employe,  who 
has  no  official  title,  draws  a  large  salary  by  reason 
of  his  experience  and  exceptional  judgment.  Again, 
the  foreign  buyer  for  a  firm  of  silk  importers  makes 
more  money  for  the  business  and  receives  more  from 
it  than  either  of  the  partners. 

It  is  only  within  late  years  that  life  insurance  has 
been  employed  as  a  solution  to  business,  or  rather  to 
commercial  and  financial  problems,  but  this  exten- 
sion of  this  utility  has  spread  rapidly,  so  that  today 
it  is  carried  by  a  majority  of  the  large  business  con- 


BUSINESS  INSURANCE  INSTRUCTOR  11 

cerns.  Extension  of  education  and  solicitation  to 
the  innumerable  small  partnerships  and  one-man 
enterprises  would  shortly  result  in  doubling  or 
trebling  the  annual  volume  of  business  insurance. 

The  potentiality  of  life  insurance  as  a  factor  in 
commercial  stability  may  be  inferred  from  a  public 
utterance  made  a  few  years  ago  by  an  officer  of  one 
of  our  leading  mercantile  agencies.  He  declared 
that  "during  the  past  decade  corporation  and  part- 
nership insurance  would  have  saved  more  than  one 
million  employers  from  sinking  back  into  the  ranks 
of  the  employed."  This  is  a  staggering  statement, 
but  it  is  supported  by  a  report  of  another  agency  to 
the  effect  that  one-third  of  all  business  failures  are 
attributable  to  deaths  for  which  no  provision  has 
been  made.  Another  large  proportion  of  business 
failures  is  doubtless  occasioned  by  general  financial 
stringency  finding  concerns  unprovided  with  reserve 
resources  such  as  would  be  furnished  by  the  loan 
values  of  life  insurance  policies. 

Life  insurance  is  adapted  to  fill  the  greatest  va- 
riety of  business  needs  as  experienced  by  corpora- 
tions, co-partnerships  and  individuals.  Newly  organ- 
ized companies  are  beginning  to  look  upon  it  as  a 
well  nigh  essential  element  of  conservative  plans, 
and  many  of  the  largest  and  most  firmly  established 
concerns  carry  heavy  lines  of  it.  The  magnitude  of 
the  amounts  involved  and  the  publicity  attached  to 
the  cases  has  led  to  undue  concentration  of  attention 
in  this  direction  and  caused  an  impression  among 
many  salesmen  that  the  larger  concerns  compose  the 
sole  prospects  for  Business  Insurance.  As  a  matter 
of  fact,  the  need  for  this  form  of  protection  is  great- 
est among  the  comparatively  small  firms  and  part- 


12  BUSINESS  INSURANCE  INSTRUCTOR 

nerships.  This  is  a  practically  unlimited  and  very 
promising  field  which  is  not  worked  to  any  appre- 
ciable extent. 

The  business  purposes  served  by  life  insurance 
are  so  numerous  and  diversified  as  to  defy  classifica- 
tion. They  range  through  the  greatest  variety  of 
protective  functions,  from  the  security  afforded  for 
a  modest  loan  to  the  enormous  group  policy  affect- 
ing thousands  of  employes.  The  examples  inter- 
spersed throughout  the  following  pages  will  illus- 
trate the  most  common  applications  of  Business 
Insurance. 

Business  Insurance,  indirectly  but  quite  effec- 
tually, embraces  domestic  insurance.  The  preserva- 
tion of  the  business  entails  the  welfare  of  the  em- 
ployer's home  and  probably  of  the  homes  of  those 
who  work  for  him.  The  familiar  effects  of  commer- 
cial failure  render  the  truth  of  this  statement  obvi- 
ous. Indeed,  in  many  instances,  a  man's  death 
would  cause  less  financial  loss  to  his  family  than  the 
failure  of  the  corporation  or  firm  with  which  he  is 
connected. 

Business  Insurance  is  both  a  conserving  and  a  de- 
veloping agency.  It  conserves  by  introducing  an 
element  of  safety  and  reserve.  It  develops  by  afford- 
ing capital  and  credit.  Business  Insurance  is  recog- 
nized as  an  asset  and  reported  by  the  mercantile 
agencies  as  such ;  thus  it  enhances  credit,  creates 
confidence  and  establishes  a  reputation  for  con- 
servatism. Of  all  forms  of  commercial  insurance, 
life  policies  alone  create  reserve  funds.  The  net 
cost  may  be  reduced  to  less  than  that  of  any  other 
kind  of  insurance.  The  life  insurance  account  of 
many  a  business  house  shows  a  handsome  profit  in 
dollars  and  cents. 


WHAT  IS  BUSINESS  INSURANCE? 

LET  us  start  with  a  working  definition  of  the 
term  "Business  Insurance."  It  is  any  form  of 
life  insurance  which  is  taken  for  financial  or 
commercial  reasons  and  the  beneficiary  of  which  has 
an  insurable  interest  based  on  grounds  other  than 
dependency  or  kinship. 

Business  Insurance  differs  from  domestic  or  per- 
sonal insurance  only  in  its  purpose.  The  same  policy 
forms  are  used  in  both  cases,  with  the  slight  modifi- 
cation necessary  when  a  corporation  or  firm  is  at 
once  the  beneficiary  and  the  party  taking  out  the 
insurance  upon  the  life  of  a  person  in  whom  it  has  a 
business  interest. 

From  the  viewpoint  of  the  agent,  Business  Insur- 
ance falls  into  two  broad  divisions:  1.  Policies 
placed  with  corporations  and  large  co-partnerships, 
usually  in  considerable  amounts.  2.  Policies  written 
for  firms  and  individual  business  men,  generally  in 
moderate  sums.  We  shall  consider  the  subject  under 
these  two  classifications,  paying  the  greater  degree 
of  attention  to  the  second  because  of  its  greater  im- 
portance and  because  of  the  fact  that  a  much  greater 
number  of  agents  are  interested  in  it. 

The  former  class  of  insurance  necessitates  on  the 
part  of  the  agent  a  general  knowledge  of  business 
practice  and  business  law,  of  banking  and  trade 
credits  and  other  matters.  Corporation  insurance 
frequently  involves  complicated  considerations  in 
the  formulation  of  the  proposition.  Lacking  the 
requisite  training  and  abilitv,  an  agent  may  devote 


14         BUSINESS  INSURANCE  INSTRUCTOR 

much  time  and  energy  to  this  branch  of  Business 
Insurance  without  adequate  results. 

The  second  class  of  Business  Insurance  presents  a 
much  more  extensive  field,  with  greater  potential 
yield.  The  richest  opportunity  open  to  the  life  in- 
surance salesman  today  exists  in  the  innumerable 
partnerships  and  proprietorships  which  are  to  be 
found  on  every  hand.  Prospects  of  the  best  kind  are 
available  practically  without  limit,  and  their  need  of 
life  insurance  protection  is  pronounced.  Mercantile 
agencies  report  that  more  than  90  per  cent  of  all 
commercial  failures  are  among  concerns  capitalized 
at  less  than  $21,000. 

Specializing  in  Business  Insurance  has  decided 
advantages  for  the  agent.  The  proposition  is  less 
difficult  to  introduce  than  one  of  domestic  insurance. 
The  former  is  comparatively  novel  and  the  business 
man  is  naturally  receptive  to  matters  affecting  the 
interests  of  his  company  or  firm.  The  general  run 
of  Business  Insurance  policies  is  larger  than  the 
average  of  personal  policies.  Settlements  with  busi- 
ness concerns  are  usually  more  satisfactory  than 
those  with  individuals,  and  business  policies  have 
the  smallest  ratio  of  lapse.  If  he  is  alive  to  the 
opportunities,  the  agent  who  places  insurance  for  a 
business  house  can  almost  always  make  the  trans- 
action a  stepping  stone  to  the  procurement  of  sev- 
eral individual  applications.  Still  another  point, 
which  is  well  worth  consideration.  When  general 
business  conditions  are  dull  or  depressed,  the  issu- 
ance of  Business  Insurance  invariably  rises. 


PREPARATION  FOR  DEALING  WITH 
ORGANIZATIONS 


M' 


ANY  skilled  salesmen,  who  have  been  highly 
successful  in  selling  domestic  or  personal 
life  insurance,  meet  with  complete  failure  in 
the  field  of  Business  Insurance.  In  a  large  majority 
of  instances  this  is  to  be  accounted  for  by  lack  of 
general  business  knowledge.  A  mediocre  life  insur- 
ance agent,  possessing  such  knowledge,  has  a'better 
chance  of  success  in  this  branch  of  our  business  than 
an  expert  life  insurance  agent  who  is  deficient  in  it. 

This  knowledge  is  of  practical  value  on  several 
accounts.  Familiarity  with  the  principles  and  prac- 
tices of  business  is  necessary  to  conceive  the  needs 
for  life  insurance  in  particular  cases  and  to  deter- 
mine the  best  manner  of  its  adaptation  to  those 
needs.  The  unqualified  agent  makes  a  crude  pro- 
posal to  insure  the  life  of  the  president  of  a  corpora- 
tion, taking  it  for  granted  that  his  death  would 
entail  greater  loss  upon  the  company  than  that  of 
any  other  officer,  which  may  not  be  the  case. 
Knowing  little  or  nothing  about  the  character  of  the 
organization,  the  nature  of  its  operations,  finances, 
assets  or  liabilities,  the  agent  has  no  idea  of  the 
probable  consequences  to  it  of  the  loss  of  its  presi- 
dent. A  knowledge  of  the  conditions  might  reveal 
to  one  familiar  with  the  conduct  of  business  some 
more  vital  interest,  such  as  the  redemption  of  bonds 
or  the  enhancement  of  credit,  requiring  such  provi- 
sion as  Business  Insurance  might  aid  in  creating. 

Ignorance  of  general  business  afifairs  can  hardly 
be  concealed  by  the  agent  dealing  with  capable  busi- 


16         BUSINESS  INSURANCE  INSTRUCTOR 

ness  men,  and  it  must  act  as  an  obstacle  to  the 
establishment  of  that  confidence  which  is  essential 
to  the  success  of  his  endeavor.  This  disadvantage  is 
not  great  in  soliciting  proprietors  and  co-partners, 
the  conditions  of  whose  business  are  usually  more 
simple  than  those  of  a  corporation. 

In  business  promotions  and  reorganizations  op- 
portunity not  infrequently  occurs  for  the  agent  to 
give  valuable  advice  or  suggestions,  if  he  is  capable 
of  doing  so.  Needless  to  say,  this  greatly  strength- 
ens his  position  when  he  advances  a  proposition  for 
Business  Insurance, 

We  shall  take  a  cursory  survey  of  the  field  of  in- 
formation with  which  the  salesman  of  Business 
Insurance  should  be  equipped,  if  he  aspires  to  ren- 
dering expert  service  and  negotiating  with  large 
cases.  Later  on  some  features  of  this  information 
will  be  treated  more  extensively.  It  is  not  the  inten- 
tion to  intimate  that  the  agent  needs  to  be  an  expert 
in  business  practice  and  law,  although  conspicuous 
successes  in  writing  Business  Insurance  have  been 
achieved  largely  by  reason  of  such  qualification. 
And  it  is  to  be  understood  that  comparatively  little 
of  this  knowledge  is  required  in  handling  proprietor- 
ship and  small  partnership  cases. 

I  know  of  no  single  volume  from  which  the  infor- 
mation in  question  can  be  more  readily  derived  than 
Gerstenberg's  "Principles  of  Business"  (Prentice- 
Hall,  70  Fifth  Avenue,  New  York).  The  same  con- 
cern publishes  other  books  which  will  be  valuable  to 
the  man  specializing  in  substantial  cases  of  Business 
Insurance. 

There  are  a  number  of  different  forms  of  business 
enterprises,  varying  in  organization,  liabilities,  func- 


BUSINESS  INSURANCE  INSTRUCTOR  17 

tions  and  other  features.  The  agent  should  be  ac- 
quainted with  the  contrasting  characteristics  of 
corporations,  "close  corporations,"  co-partnerships, 
limited  liability  concerns,  joint-stock  companies  and 
proprietorships.  He  should  be  posted  on  the  laws 
governing  their  organization,  dissolution  and  opera- 
tion, especially  with  regard  to  the  direct  bearing  of 
those  laws  on  Business  Insurance;  also  the  laws 
relating  to  income  and  inheritance  taxes.  In  work- 
ing Business  Insurance  the  agent  will  often  be  asked 
for  information  which  he  will  be  able  to  furnish  only 
if  he  possesses  the  knowledge  in  question.  It  goes 
without  saying  that  his  knowledge  must  be  thor- 
ough and  reliable,  but  it  need  not  be  exhaustive. 
What  is  meant  is  that,  as  far  as  these  various  mat- 
ters connect  with  his  business,  the  agent  should  be 
an  authority,  but  it  is  not  advisable  for  him  to  study 
them  beyond  the  point  of  this  relevance. 

Framing  a  proposition  of  Business  Insurance 
sometimes  involves  calculation  of  a  concern's  liabil- 
ities and  assets,  which  calls  for  a  knowledge  of  the 
methods  of  appraising  these,  of  providing  for  de- 
preciation, of  the  nature  of  different  kinds  of  bonds 
and  stocks,  etc. 

It  is  highly  important  to  understand  the  nature  of 
credits  and  the  bases  on  which  the  bank  and  the 
supply  house  extend  them,  as  well  as  the  recognized 
commercial  methods  of  borrowing  money.  In  this 
connection  some  knowledge  of  collateral  security 
and  negotiable  instruments  is  valuable. 

Ability  to  read  a  mercantile  agency  report  intelli- 
gently is  a  requisite.  Such  data  should  be  used  fre- 
quently. In  a  great  majority  of  instances  these 
reports  will  afford  clues  to  business  other  than  that 


18  BUSINESS  INSURANCE  INSTRUCTOR 

immediately  in  prospect.  Quite  frequently  they 
point  to  excellent  cases  for  individual  insurance. 
They  are  the  readiest,  and  often  the  only,  sources 
from  which  to  obtain  the  information  necessary  to 
the  formulation  of  an  appropriate  proposal  of  Busi- 
ness Insurance.  They  have  the  additional  advantage 
of  enabling  the  agent  to  display  the  intimate  knowl- 
edge of  the  concern's  affairs  which  is  almost  sure  to 
secure  a  hearing  for  him.  Elsewhere  a  specimen 
mercantile  report  is  given,  with  comments. 


FUNDAMENTAL  KNOWLEDGE 

IT  IS  recommended  that  the  agent  who  purposes 
writing  Business  Insurance  for  corporations  and 
large  firms  should  read  one  of  the  several  books 
on  Corporation  Finance.  These  contain  typical 
illustrations  of  articles  of  co-partnership,  certificates 
of  incorporation,  promotion  prospectuses,  plans  of 
consolidation,  voting  trust  agreements,  readjust- 
ments of  capital  account,  financial  statements,  bond 
issues,  mortgages,  and  other  matters  from  which  he 
cannot  fail  to  gain  numerous  suggestions  for  the 
application  of  Business  Insurance.  If  this  is  not 
done  as  a  general  preparation,  recourse  should  be 
had  to  such  a  volume  for  preliminary  information  in 
particular  cases.  For  example,  the  agent  hears  of  a 
merger  and  forms  the  idea  of  making  it  the  basis  for 
a  proposal  of  Business  Insurance.  He  will  do  well 
to  read  the  descriptions  of  one  or  two  consolida- 
tions, as  given  in  a  work  of  Corporation  Finance, 
and  then  seek  to  learn  the  details  of  the  case  in  view. 
In  the  same  way  he  may  qualify  himself  to  make  an 
intelligent  proposition  for  Business  Insurance  in 
connection  with  a  bond  issue,  a  mortgage,  or  other 
transaction  of  a  corporation  involving  increased 
liabilities. 

In  many  instances  such  knowledge  is  necessary  in 
order  to  formulate  a  logical  argument  in  support  of 
the  proposition.  The  agent  who  is  completely  igno- 
rant of  the  subject  in  question  is  bound  to  ruin  the 
chances  of  success.  A  case  in  point  was  recently 
recounted  to  the  writer  by  a  member  of  a  firm  who 
had  been  approached  by  an  agent  with  a  proposition 


20  BUSINESS  INSURANCE  INSTRUCTOR 

for  Business  Insurance,  on  the  strength  of  the  con- 
cern having  taken  in  a  special  partner.  There  was 
ground  for  insurance  and  it  was  written,  but  not  by 
the  agent  in  question.  In  the  first  and  only  inter- 
view he  displayed  a  complete  misunderstanding  of 
the  situation.  He  did  not  know  the  status  of  a  spe- 
cial partner,  nor  the  nature  of  his  connection,  and 
made  a  proposition  which  proved  that  he  was  igno- 
rant of  the  real  hazard  in  the  case. 

The  Agent  who  aspires  to  writing  Business  Insur- 
ance in  large  amounts  must  make  a  specialty  of  it. 
He  cannot  hope  for  success  unless  he  is  willing  to 
take  the  trouble  to  qualify  for  it. 

Cases  of  Business  Insurance  which  are  written  on 
the  presentation  of  simple  and  obvious  reasons  are 
usually  small  cases.  The  large  cases  almost  always 
involve  more  than  superficial  knowledge  of  business 
affairs  on  the  part  of  the  agent.  Possession  of  such 
knowledge  often  enables  him  to  find,  below  the  sur- 
face, conditions  upon  which  to  base  a  proposition 
that  would  not  otherwise  occur  to  him.  The  pres- 
entation of  Business  Insurance  in  a  new  aspect 
excites  interest  and  secures  applications  where  com- 
monplace proposals  have  completely  failed. 

We  will  continue  with  consideration  of  matters 
which  should  be  within  the  knowledge  of  an  agent 
aspiring  to  write  Business  Insurance  in  connection 
with  large  concerns. 

Good-will  is  the  patronage  enjoyed  by  a  business. 
It  is  derived  from  many  different  sources.  Good-will 
is  rarely  a  definitely  calculable  asset.  It  is  some- 
times inserted  in  books  of  account  at  a  specific  valu- 
ation.    Upon  a  business  changing  hands,  good-wiU 


BUSINESS  INSURANCE  INSTRUCTOR  21 

may  be  paid  for  at  a  high  figure,  especially  when  its 
stability  is  apparent  and  the  cost  of  its  creation  can 
be  shown  to  have  been  heavy.  When  a  partner  re- 
tires from  a  firm,  it  frequently  pays  for  his  good- 
will ;  that  is  to  s.ay,  his  connection. 

It  may  be  that  a  large  proportion  of  a  concern's 
business  is  due  to  the  reputation  or  influence  of  an 
individual.  In  the  event  of  his  death  or  disassocia- 
tion  this  business,  or  a  considerable  portion  of  it, 
would  be  lost.  Life  insurance  will  indemnify  for 
such  a  condition.  An  endowment  policy  should  be 
taken  to  provide  for  the  latter  contingency. 

Depreciation  consists  of  decrease  in  value  of  fixed 
assets.  It  may  be  occasioned  by  wear  and  tear, 
shrinkage,  expiration  of  franchises  and  other  causes. 
The  depreciation  factor  enters  into  the  calculations 
of  all  forms  of  business,  but  varies  greatly.  In  a 
law  firm,  for  instance,  it  would  be  limited  to  the 
wear  and  tear  of  the  office  furniture.  In  an  indus- 
trial corporation  it  would  extend  to  buildings,  ma- 
chinery and  other  equipment. 

Depreciation  may  be  estimated  and  written  off  at 
a  fixed  rate  annually  against  profits  or  dividends. 
Or,  it  may  be  provided  for  by  the  establishment  of 
a  reserve  account  or  sinking  fund.  This  would  bear 
interest  and  would  be  debited  with  expenditures  for 
replacements  and  maintenance. 

The  estimates  of  depreciation  in  most  large  busi- 
nesses are  necessarily  more  or  less  arbitrary.  But 
in  some  cases  an  approximation  to  precise  calcula- 
tion is  possible.  For  example,  auto-delivery  trucks 
of  a  standard  type  are  estimated  as  depreciating  10 
per  cent  a  year.  That  is  to  say,  the  life  of  this  asset 
is  calculated  at  10  years.     A  ten-year  endowment 


22  BUSINESS  INSURANCE  INSTRUCTOR 

policy  would  make  exact  provision  for  the  replace- 
ment of  such  equipment. 

The  average  sinking  fund  is  5  per  cent  yearly. 
The  principal  sum  contemplated  is,  therefore,  real- 
ized in  20  years,  or  such  reduction  of  that  period 
as  may  be  effected  by  interest  accumulation.  A 
twenty-year  endowment  policy,  at  an  average  age, 
will  require  a  premium  payment  of  less  than  5  per 
cent  and  the  accrued  dividends  will  operate  as  an 
offset  to  the  interest  on  the  sinking  fund.  Of  course, 
the  method  of  providing  for  depreciation  by  life 
insurance  has  the  great  advantage  that  the  death  of 
the  insured  may  put  the  concern  in  possession  of  the 
principal  sum  at  an  earlier  time  and  smaller  outlay 
than  by  the  method  of  creating  a  reserve  account. 
Moreover,  the  insurance  may  cover  a  valuable  life 
and  so  effect  two  important  purposes.  A  proposi- 
tion, on  these  lines  will  often  make  a  strong  appeal 
to  a  corporation.  And  it  must  be  borne  in  mind  that 
every  industrial  concern  requires  to  maintain  a  sub- 
stantial sinking:  fund. 


SINKING  FUND  FOR  REDEMPTION 
OF  BONDS 

A  COMMON  method  of  providing  working  cap- 
ital for  a  new  business  or  for  the  extension  of 
a  going  concern  is  by  the  issue  and  sale  of 
bonds.  The  redemption  of  these  is  usually  provided 
for  by  the  creating  of  a  sinking,  reserve  or  redemp- 
tion fund.  This  consists  of  money  deposited  in  bank 
or  conservatively  invested  in  such  periodical  sums 
as  will  amount  to  sufficient,  together  with  interest, 
or  other  securities,  to  discharge  the  obligation  at 
maturity. 

Bonds  are  issued  for  varying  periods  and  some- 
times as  a  serial;  that  is  to  say,  an  issue  certain 
proportions  of  which  mature  in  periods  of  varying 
lengths.  In  any  case,  endowment  insurance  fur- 
nishes a  substitute  for  the  ordinary  sinking  fund 
which  will  prove  attractive  to  most  corporations,  if 
properly  presented.  It  has  the  advantages  which 
were  noted  in  connection  with  a  similar  recourse  for 
anticipating  depreciation.  There  is  the  additional 
consideration  in  the  case  of  insurance  taken  to  pro- 
vide for  the  redemption  of  bonds  that,  if  the  policies 
are  specifically  taken  and  held  in  trust  for  that  pur- 
pose, they  contribute  an  element  of  strength  to  the 
bonds  which  is  calculated  to  facilitate  the  sale  of 
them. 

Capital,  in  a  commercial  sense,  means  all  the  prop- 
erty owned — not  borrowed — and  used  in  business. 
The  term  "invested  capital"  more  exactly  expresses 
this  idea,  whilst  "working  capital"  implies  the  net 
amount  of  liquid  funds  available  for  the  immediate 


24  BUSINESS  INSURANCE  INSTRUCTOR 

operating  expenses  of  a  business.  Working  capital 
to  tide  over  three  or  four  months  is  usually  consid- 
ered sufficient  for  industrial  concerns,  but  the  need 
may  be  considerably  increased  by  extraordinary  cir- 
cumstances. During  a  period  of  expansion  a  com- 
pany will  require  a  substantial  increase  of  ready 
money  or  bank  credit,  because  the  cost  of  increased 
output  will  keep  ahead  of  increases  of  ready  cash 
for  some  time.  The  manufacture  of  seasonal  prod- 
ucts demands  a  supply  of  working  capital  much 
greater  at  one  period  of  the  year  than  at  another. 
Contract  work  extending  over  a  long  period,  with 
payment  deferred  until  completion,  would  involve 
the  use  of  an  exceptional  amount  of  working  capital. 

A  business  with  little  or  no  reserve  funds  is  in  a 
more  or  less  precarious  situation  in  times  and  under 
conditions  which  strain  its  resource  of  working  cap- 
ital. The  death  of  an  important  person  in  its  organ- 
ization at  such  a  juncture  might  entail  the  worst 
effects,  unless  provision  for  indemnity  had  been 
made  through  the  medium  of  Business  Insurance. 


VARIOUS  FORMS  OF  BUSINESS 
ENTERPRISES 

THE  form  of  the  organization  determines,  among 
other  things,  the  degree  of  risk  assumed  by  the 
persons  interested  in  it.  Of  course,  this  has  a 
direct  bearing  on  Business  Insurance  as  indicating 
specific  need  for  protection.  A  member  of  a  part- 
nership, for  example,  may  lose  all  the  money  he  has 
invested  in  it,  and  everything  he  possesses  besides, 
unless  it  be  a  limited  liability  concern.  As  a  stock- 
holder in  a  corporation,  on  the  other  hand,  his  liabil- 
ity to  loss  will  be  restricted  to  the  amount  of  his 
investment,  except  in  the  case  of  a  banking  business. 
(The  laws  of  some  states,  notably  California,  extend 
the  liability  of  stockholders  in  corporations.) 

The  most  common  forms  of  business  enterprise 
are  sole  proprietorships,  partnerships,  and  corpora- 
tions. Each  of  these  has  some  variations  which 
afifect,  more  or  less,  the  liabilities  involved.  For 
instance,  the  joint-stock  company  is  a  partnership 
with  transferable  shares.  The  limited  partnership 
is  one  in  which  some  of  the  members  have  a  limited 
liability.  The  so-called  "close  corporation"  is  one 
the  stock  of  which  is  held  in  few  hands.  Sometimes 
it  is  a  proprietorship  or  partnership  in  corporate 
form. 

The  Proprietorship  is  a  business  owned  by  one 
person,  w^ho  is  generally  the  sole  manager.  He  may 
be  operating  on  borrowed  capital.  Needless  to  say, 
under  such  circumstances,  insurance  should  be  car- 
ried for  the  protection  of  the  backer,  primarily,  but 


26  BUSINESS  INSURANCE  INSTRUCTOR 

also  in  order  to  conserve  the  business  for  the  own- 
er's heirs. 

The  one-man  business  is  the  most  numerous  form 
and  includes  many  concerns  in  which  large  capital 
is  employed.  The  great  majority  of  proprietors  be- 
come first-class  prospects  for  Business  Insurance 
when  its  potential  services  are  explained  to  them. 

The  liability  of  the  sole  owner  is  absolutely  un- 
limited. His  private  property  may  be  attached  by 
his  creditors  and,  under  certain  conditions,  which 
the  agent  should  ascertain  by  reference  to  the  Bank- 
ruptcy Law  and  court  decisions,  he  may  be  com- 
pelled to  realize  the  cash  value  of  his  personal  life 
insurance  for  the  payment  of  debts. 

The  disadvantage  involved  in  the  combination  of 
business  and  private  liability  is  offset  by  the  conse- 
quent combination  of  business  and  private  credit. 
The  individual  proprietor  can  borrow  more  exten- 
sively and  consequently  operate  more  extensively 
than  he  could  if  his  liability  were  limited.  This 
credit  may  be  considerably  enhanced  by  safeguard- 
ing with  Business  Insurance  against  the  conse- 
quences of  death  or  permanent  disability,  which 
would  be  especially  disastrous  to  an  enterprise 
under  one-man  management. 

The  Partnership  is  similar  in  nature  to  the  Pro- 
prietorship, being  a  combination  of  two  or  more 
owners.  In  law,  the  members  of  a  firm  are  regarded 
as  one  person,  so  far  as  their  acts  are  concerned. 
For  example,  all  are  liable  to  the  fullest  extent  for  a 
debt  contracted  by  one,  within  one  scope  of  the  busi- 
ness. Death,  insanity,  bankruptcy,  or  the  with- 
drawal of  a  member  automatically  dissolves  the 
partnership.     Firms  are  usually  perpetuated  by  a 


BUSINESS  INSURANCE  INSTRUCTOR  27 

new  organization  immediately  following  such  an 
occurrence.  Business  Insurance  is  the  most  certain 
and  effective  agency  for  assuring  the  continuance  of 
a  business  under  the  conditions  in  question,  just  as 
it  is  the  surest  means  of  securing  survival  of  a  pro- 
prietorship after  the  owner's  death. 

The  unlimited  liability  of  partners  has  a  favorable 
effect  on  their  credit,  but  this  is  more  than  offset  by 
the  danger  of  sudden  dissolution  and  by  the  unre- 
stricted power  of  one  member  to  commit  his  asso- 
ciates, even  without  their  knowledge.  Insurance 
will  generally  act  as  a  counterbalance  of  these  dis- 
advantages and  enhance  the  bank  and  trade  credit 
of  a  firm. 

The  Joint-Stock  Company  entails  upon  its  mem- 
bers the  same  liabilities  as  those  attaching  to  gen- 
eral partnerships,  but  it  has  advantages  which  the 
latter  lack.  The  shares  of  the  joint-stock  concern 
may  be  transferred  without  affecting  the  perma- 
nency of  the  organization,  so  that  it  may  continue 
indefinitely,  like  the  corporation.  The  control  of  the 
company  is  vested  in  a  board  of  directors,  and  indi- 
vidual members  have  not  the  power  to  commit  the 
concern.  This  form  of  organization  partakes  of  the 
characteristics  of  both  a  co-partnership  and  a  cor- 
poration. The  consideration  of  Business  Insurance 
for  a  joint-stock  company  will  be  influenced  in  more 
than  one  respect  by  its  dual  character. 

The  Corporation  is  an  organization  doing  business 
under  a  charter  granted  by  the  government.  Its 
ownership  is  represented  by  transferable  shares  and 
its  management  is  under  the  control  of  a  board  of 
directors. 

Heavily  capitalized  and  extensively  operating  en- 


28  BUSINESS  INSURANCE  INSTRUCTOR 

terprises  are  usually  conducted  under  the  corporate 
form.  Great  monetary  interests  are  involved  and 
exceptionally  valuable  men  are  employed  in  posi- 
tions of  responsibility.  Hence  large  policies  of  Busi- 
ness Insurance  are  generally  issued  for  the  benefit 
of  corporations.  Nevertheless,  their  need  of  insur- 
ance protection  is  relatively  less  than  that  of  a  part- 
nership or  of  a  one-man  business. 

The  Close  Corporation  is  peculiar  only  in  the  fact 
that  its  stock  is  held  in  a  few  hands.  There  are 
usually  substantial  reasons  for  this  condition.  Busi- 
ness Insurance  is  especially  serviceable  to  a  close 
corporation  as  a  means  of  perpetuating  the  restricted 
control.  Reinforced  by  a  subsidiary  agreement,  it 
will  provide  funds  for  enabling  the  survivors  to 
absorb  the  stock  holding  of  a  deceased  associate 
and  so  prevent  its  passing  to  alien  and.  perhaps, 
objectionable  hands. 

It  may  be  said  in  passing  that  the  agent  should  be 
able  to  draw  up,  in  unquestionable  form,  the  subsid- 
iary agreements  which  are  frequently  necessary  to 
insure  the  full  effectiveness  of  Business  Insurance. 
It  is  strongly  inadvisable  to  have  the  legal  adviser 
of  the  corporation  or  firm  brought  into  the  transac- 
tion. He  is  likely  to  create  all  manner  of  compli- 
cations. To  forestall  any  questions  on  the  part  of 
the  prospect  as  to  the  soundness  of  the  agreement, 
and  invariably  when  the  least  doubt  exists  in  his 
own  mind,  the  agent  had  better  have  the  document 
drawn  or  approved  by  a  lawyer  of  repute. 

Consolidations  and  Reorganizations  frequently 
present  logical  occasions  for  Business  Insurance 
proposals.  An  amalgamation  or  a  merger  of  two  or 
more  business  enterprises  almost  invariably  involves 


BUSINESS  INSURANCE  INSTRUCTOR  29 

deferred  liabilities,  for  the  discharge  of  which  pro- 
vision may  be  made  through  Business  Insurance. 

Reorganization  usually  entails  change  of  manage- 
ment and  increased  responsibilities.  Frequently  it 
is  accompanied  by  enlarged  capital  with  correspond- 
ingly increased  liability.  A  common  feature  of  the 
transaction  is  extension  of  operation,  which  neces- 
sarily creates  new  hazards. 

In  case  of  consolidation  or  reorganization  it  is 
probable  that  the  reconstructed  enterprise  will  have 
a  new  head  and  perhaps  other  new  officers  whose 
lives  the  concern  may  be  disposed  to  cover  with 
Business  Insurance. 

The  Bankruptcy  Law  should  be  studied  in  so  far 
as  it  may  affect  a  canvass  of  Business  Insurance.  In 
particular,  ascertain  the  precise  status  of  business 
and  domestic  insurance  carried  by  insolvent  debtors. 


BUSINESS  INSURANCE  AS  A  CREDIT 
STABILIZER 

CREDIT  is  the  most  vital  element  in  business 
affairs.     It  permeates   the  commercial   struc- 
ture and,  in  one  way  or  another,  affects  every 
transaction. 

In  a  circular  issued  by  the  Harriman  National 
Bank  of  New  York,  the  following  statement  occurs : 
"An  important  feature  of  business  life  insurance  is 
the  additional  credit  responsibility  which  it  con- 
fers ;  it  is  also  an  asset  of  growing  value  from  year 
to  year;  and  all  in  all-  this  type  of  insurance  is  so 
reasonable  and  so  obviously  advantageous  that  it 
might  readily  be  made  a  requirement  of  all  commer- 
cial borrowers." 

Credit  is  based  on  the  intention  and  ability  of  the 
debtor  to  discharge  his  obligations.  How  precar- 
ious is  this  security,  in  the  absence  of  the  additional 
safeguard  of  life  insurance,  may  be  inferred  from  the 
"Bradstreet's  Business  Morality"  reports  for  the 
United  States  and  Canada,  which  indicate  average 
failure  of  1  per'cent  annually  during  the  past  thirty- 
eight  years.  In  this  connection  the  term  "failure" 
is  applied  only  to  cases  involving  monetary  loss  to 
creditors  or  individuals,  firms  or  corporations,  and 
does  not  include  reorganizations  or  clean  liquida- 
tions. 

Recently  the  magazine  "System"  made  a  careful 
investigation  of  the  business  experience  of  a  typical 
city,  covering  the  thirty-year  period  ending  with 
1917.  Some  features  of  the  results  obtained  are 
quoted : 


BUSINESS  INSURANCE  INSTRUCTOR  31 

Six  of  every  ten  concerns  that  start  in  business  are 
sure  to  expire  by  reason  of  some  weakness  within 
thirty  years.  Most  of  the  failures  occur  in  less  than 
eight  years.  Out  of  a  group  of  61  concerns  in  busi- 
ness at  the  beginning  of  the  period,  only  seven  were 
still  in  existence.  Nearly  half  of  that  number  failed 
in  the  first  five  years,  and  one-third  in  the  next  sim- 
ilar period.  Out  of  a  total  of  4,369  business  concerns 
investigated,  57  per  cent  failed  before  the  expiration 
of  the  thirty-year  period.  The  chief  cause  of  failure 
was  shortage  of  capital;  that  is  to  say,  insufficient 
credit. 

The  late  president  of  the  Bradstreet  Mercantile 
Agency  declared:  "It  is  practically  beyond  ques- 
tion that  partnership  and  corporation  insurance 
strengthens  the  credit  of  concerns  adopting  it.  The 
increased  confidence  which  it  establishes  is  recog- 
nized in  the  mercantile  community  and  thus  re- 
flected through  our  reports." 

Concrete  evidence  of  the  value  which  is  placed  on 
life  insurance  as  a  stabilizer  of  business  is  found  in 
the  credit  forms  of  the  U.  S.  Federal  Reserve  Banks, 
the  American  Bankers'  Association,  and  the  Credit 
Men's  Association,  each  of  which  embraces  inquiries 
relating  to  the  personal  insurance  carried  by  private 
individuals  and  the  Business  Insurance  of  firms  and 
corporations  applying  for  loans  or  credit. 

Add  to  the  foregoing  the  fact  that  upwards  of  one 
billion  of  dollars  of  Business  Insurance  has  been 
written  in  the  United  States  during  the  past  few 
years.  By  far  the  greater  part  of  this  vast  sum  was 
placed  with  large  firms  and  corporations.  Since  1916 
a  considerable  proportion  of  these  issues  have  been 
taken  by  wealthy  persons  in  anticipation  of  the  post- 


32         BUSINESS  INSURANCE  INSTRUCTOR 

mortem  demands  of  the  Federal  Estate  and  States 
Inheritance  taxes.  Comparatively  little  of  the  Busi- 
ness Insurance  written  in  great  volume  yearly  is 
carried  by  the  small  concerns,  whose  need  for  it  is 
greatest  and  whose  numbers  are  much  in  excess  of 
the  other  classes.  This  fact  indicates  an  almost  lim- 
itless field  of  favorable  opportunity  for  the  life  in- 
surance agent. 


BANK  AND  TRADE  CREDITS 

FOR  our  purposes,  this  factor  may  be  considered 
under  two  heads — bank  credit  and  trade  credit 
— which  differs  somewhat  from  the  classifica- 
tion of  the  text-books.  The  former  represents  the 
borrowing  capacity  of  a  concern  which  is  generally 
exercised  through  the  medium  of  a  commercial  bank, 
(Another  form  of  financial  credit  is  that  which  en- 
ables a  corporation  to  sell  its  stock  or  float  a  bond 
issue.)  Trade  credit  represents  the  capacity  of  a 
concern  to  obtain  raw  material,  goods  or  service 
upon  the  tacit  or  stipulated  undertaking  to  make 
payment  in  the  future. 

The  stability  of  a  concern's  credit  is  vital  to  its 
prosperity.  The  enhancement  of  its  credit  is  often 
of  the  greatest  material  consequence.  Business 
Insurance  is  an  effective  factor  in  maintaining  or 
producing  these  conditions.  A  few  illustrations  will 
make  this  clear. 

A  is  a  man  of  proven  integrity  and  ability,  con- 
ducting a  jewelry  business.  At  times  he  procures 
small  unsecured  loans  from  his  bank  on  short  term 
notes  of  hand.  Several  supply  houses  furnish  him 
with  goods  on  ninety-day  settlements. 

A  owns  practically  nothing  but  the  good-will  of 
his  business  and  the  lease  of  the  premises  on  which 
it  is  conducted.  His  bank  and  trade  credits  are 
based  mainly  upon  his  personal  character  and  busi- 
ness ability.  They  involve  little  risk  so  long  as  he 
is  able  to  run  his  store,  but  will  be  followed  by 
almost  certain  loss  in  the  event  of  his  premature 
death. 


34  BUSINESS  INSURANCE  INSTRUCTOR 

Today  the  business  is  perfectly  solvent,  gauged 
by  the  book  accounts.  Tomorrow  the  proprietor  is 
killed  in  an  automobile  accident.  Instantly  the  busi- 
ness becomes  insolvent.  The  intrinsic  value  of  the 
stock  is  the  same  as  yesterday.  The  bills  receivable 
are  as  good  as  ever  and  the  bills  payable  are  no 
greater  than  before.  But  the  chief  factor  in  the 
enterprise — the  personality  of  the  proprietor — has 
been  eliminated.  The  assets,  at  a  forced  sale,  may 
realize  no  more  than  30  cents  on  the  dollar  of  their 
book  value. 

A  commensurate  amount  of  insurance  on  the  life 
of  A,  payable  to  the  business,  would  have  enabled  it 
to  discharge  immediate  liabilities  and  continue  until 
a  purchaser  might  be  found  or  liquidation  effected 
under  favorable  conditions.  Since  A's  family  would 
be  the  recipients  of  any  profit  balance  realized  from 
the  disposal  of  the  store,  Business  Insurance  in  his 
case  would  distinctly  embrace  domestic  insurance. 

In  presenting  these  considerations  to  a  prospect, 
the  agent  should  not  fail  to  draw  attention  to  the 
abstract  values  in  the  case.  A  man  of  probity  will 
count  it  worth  much  to  have  his  reputation  for  busi- 
ness foresight  and  the  payment  of  his  debts  survive 
beyond  his  death.  He  may  have  a  son  whose  busi- 
ness fortunes  will  be  seriously  affected,  one  way  or 
the  other,  by  the  manner  in  which  the  father's  affairs 
are  wound  up. 

B  is  a  manufacturing  concern,  of  which  two  men 
are  the  mainstays — C,  by  reason  of  his  technical 
knowledge  and  executive  ability,  and  D  by  reason  of 
his  weight  as  an  endorser  of  the  company's  paper. 

The  company  has  an  extensive  line  of  credit  with 
its  bank,  to  secure  which  it  deposits  collateral  secur- 


BUSINESS  INSURANCE  INSTRUCTOR         35 

ity.  The  product  is  a  seasonal  one,  and  at  certain 
periods  of  the  year  the  concern  employs  its  bank 
credit  to  the  limit  and,  at  the  same  time,  goes  into 
debt  heavily  for  raw  material. 

Measured  by  its  business,  the  credits  extended  to 
the  company  are  conservative.  If  the  continuance 
of  existing  conditions  could  be  guaranteed,  the 
credit  transactions  would  entail  no  hazard  whatever. 
However,  a  large  proportion  of  the  security  behind 
the  bank  and  trade  credits  consists  of  the  peculiarly 
valuable  services  of  C  and  D, 

Suppose  that  C  or  D,  or  both,  should  die  when  its 
marketing  season  was  several  months  away,  it  can 
easily  be  imagined  that  the  company  might  expe- 
rience embarrassment  in  several  forms.  Business 
Insurance  would  counteract  the  possibility  of  such 
adverse  developments  or,  at  least,  minimize  their 
consequences. 


RETAIL  CREDITS 

THE  chief  sources  from  which  the  retail  mer- 
chant secures  credit  are  the  wholesale  house 
and  the  bank.  The  credit  he  enjoys  is  based 
on  his  integrity,  his  ability,  his  character,  his  finan- 
cial standing  and  his  general  assets.  If  his  record 
and  reputation  in  these  respects  are  good,  the 
extender  of  credit  is  inspired  with  confidence  in  the 
merchant's  promises  —  and  confidence  is  the  main- 
spring of  credit. 

The  banker  in  considering  a  loan,  or  the  credit 
man,  in  considering  a  supply  of  goods,  if  he  be  pru- 
dent and  experienced,  weighs  these  factors,  not  only 
in  their  present  conditions,  but  also  in  their  possible 
future  development.  The  course  of  his  deliberations 
will  extend  beyond  the  immediate  circumstances  of 
the  case  and  carry  his  mind  forward  to  a  contempla- 
tion of  the  contingency  of  death.  At  this  point  a 
factor  enters  into  the  credit  calculations  which  may 
not  be  susceptible  of  measurement  by  the  personal 
qualities  of  the  merchant  or  the  current  status  of  his 
business.  The  plans  and  intentions  of  the  most 
honest  man  for  the  discharge  of  his  obligations  may 
be  completely  nullified  by  the  sudden  intervention 
of  the  grim  reaper.  The  business  which  is  quite 
solvent  and  prosperous  may  be  rendered  unstable  by 
the  removal  of  its  head,  with  the  consequent  loss  of 
valuable  services  and  the  impairment  of  confidence. 
This  is  the  usual  sequel  to  the  death  of  a  partner  or 
sole  proprietor. 

This  consideration  is  justification  for  the  demand 
on  the  part  of  the  bank  or  wholesale  house  for  a 


BUSINESS  INSURANCE  INSTRUCTOR  2,7 

margin  of  safety  in  excess  of  the  merchant's  imme- 
diate resources.  It  is  not  sufficient  that  they  can 
and  will  meet  his  liabilities,  if  all  goes  well.  He 
should  be  required  to  safeguard  his  creditor  against 
the  results  of  adverse  contingencies.  The  principle 
involved  in  this  statement  is  universally  recognized 
in  so  far  as  it  entails  protection  against  loss  by  fire. 
No  retail  merchant  would  expect  to  get  credit  unless 
he  carried  fire  insurance.  And  the  average  chance 
of  death  is  about  ten  times  that  of  fire. 

How  is  this  provision  to  be  efifected?  Surely  not 
by  keeping  a  surplus  balance  in  the  bank.  The  man 
who  could  afford  to  do  that  would  not  need  credit. 
Not  less  impracticable  would  be  the  maintenance  of 
reserve  security  in  the  form  of  property.  Most 
merchants  need  to  employ  in  their  business  all  the 
capital  they  can  command.  The  only  economically 
feasible  way  of  creating  a  safety  fund  for  the  pur- 
pose of  counteracting  unfavorable  developments 
growing  out  of  the  death  of  the  debtor  is  through 
the  medium  of  life  insurance. 

Business  Insurance  is  more  necessary  to  the  small 
firm  than  to  the  larger  one  or  the  corporation.  Many 
concerns  are  running  on  the  narrowest  margin  of 
capital.  Any  shrinkage  of  this  generally  entails  em- 
barrassment, if  not  disaster.  The  records  of  com- 
mercial agencies  show  that  nearly  30  per  cent  of 
failures  among  firms  are  solely  attributable  to 
deaths  for  which  no  provision  had  been  made. 

The  credit  of  the  small  firm  is  often  precarious 
and  generally  restricted ;  its  capacity  for  expansion 
is  limited;  its  future  prosperity  frequently  depends 
upon  a  continuance  of  uniformly  favorable  circum- 


38  BUSINESS  INSURANCE  INSTRUCTOR 

stances.     All  these  conditions  may  be  mitigated  or 
eradicated  by  Business  Insurance. 

It  should  be  clearly  understood  that  Business 
Insurance  does  not  create  credit;  that  is  based  on 
assets,  established  business,  personal  qualities  and 
other  considerations.  Business  Insurance  enhances 
credit;  it  protects  and  stabilizes  credit.  Many 
agents  fail  to  realize  this  distinction.  Prospects  are 
frequently  assured  that  the  mere  fact  of  taking  out  a 
policy  of  life  insurance  will  result  in  the  granting  of 
credit.  When  a  concern  has  no  credit  basis,  Busi- 
ness Insurance  will  rarely  improve  the  situation. 
But,  where  ordinary  credit  is  enjoyed.  Business 
Insurance  will  often  secure  an  extension  of  it.  In 
some  cases,  where  there  are  no  material  assets  and 
the  only  security  consists  of  personal  qualities,  Busi- 
ness Insurance  supplies  the  lacking  factor  of  safety 
by  providing  for  the  contingency  of  death  or  perma- 
nent total  disability. 


BUSINESS  INSURANCE  INSTRUCTOR  39 


SECTION  ONE 

Test  Questions 

1.  A  is  a  corporation  employing  $300,000  of  in- 
vested capital,  owning-  a  large  manufacturing 
plant  and  a  valuable  patent.  The  annual  net 
earnings  of  the  company  are  upwards  of  $60,000. 
What  is  its  principal  asset? 

2.  Name  some  of  the  institutions  that  recognize 
Business  Insurance  as  an  asset  by  making  in- 
quiry regarding  it  in  their  application  for  loan 
blanks. 

3.  Define  Business  Insurance. 

4.  From  the  agent's  point  of  view,  Business  Insur- 
ance falls  into  two  broad  divisions.  What  are 
they? 

5.  Which  is  the  larger  of  the  two  fields  for  writing 
Business  Insurance? 

6.  State  some  of  the  advantages  for  the  agent  in 
specializing  in  Business  Insurance. 

7.  Name  the  most  common  forms  of  business 
enterprise. 

8.  There  is  one  especial  need  of  close  corporations 
that  is  perfectly  filled  by  Business  Insurance. 
What  is  it? 

9.  Every  concern  owning  a  plant  or  other  material 
equipment  has  a  deferred  liability  to  provide 
for.  What  is  it,  and  how  can  it  best  be  pro- 
vided for? 

10.    Does  Business  Insurance  create  credit? 


40         BUSINESS  INSURANCE  INSTRUCTOR 


SECTION  ONE 

Answers  to  Test  Questions 

1.  The  intelligence,  experience  and  ability  that 
produced  20  per  cent  profit  on  invested  capital 
represent  by  far  the  most  valuable  asset  of  the 
corporation.  The  loss  of  this  asset  would  be 
much  more  disastrous  than  the  destruction  of 
the  plant. 

2.  Federal  Reserve  Banks,  American  Bankers'  As- 
sociation, the  mercantile  agencies,  National 
Credit  Men's  Association  and  banks  in  general. 

3.  Business  Insurance  is  any  form  of  life  insurance 
which  is  carried  for  financial  or  commercial 
purposes  and  the  beneficiary  of  which  has  an 
insurable  interest  based  on  grounds  other  than 
dependency  or  kinship. 

4.  (1)  Policies  placed  with  corporations  and 
large  co-partnerships,  usually  in  considerable 
amounts.  (2)  Policies  written  for  firms,  sole 
proprietorships  and  individuals,  usually  in  com- 
paratively small  amounts. 

5.  Mercantile  agencies  report  that  90  per  cent  of 
all  commercial  failures  are  among  concerns  cap- 
italized at  less  than  $21,000.  There  are  scores 
of  such  concerns  to  every  one  of  the  larger  class 
and  their  need  of  Business  Insurance  protection 
is  greater. 

6.  As  a  rule,  interest  is  more  readily  excited  in 
Business  Insurance  than  in  personal  insurance 
because  a  man  is  always  receptive  to  ideas  con- 


BUSINESS  INSURANCE  INSTRUCTOR  41 

cerning  his  business,  and  also  because  the  for- 
mer is  comparatively  novel.  The  average  of 
Business  Insurance  policies  is  larger  than  those 
of  personal  insurance.  Settlements  with  busi- 
ness concerns  are  usually  more  satisfactory 
than  those  with  individuals,  and  Business  In- 
surance policies  have  the  smallest  ratio  of  lapse. 
When  general  business  conditions  are  depressed 
the  issuance  of  Business  Insurance  invariably 
increases.  The  Business  Insurance  canvass 
almost  always  discloses  prospects  for  individual 
insurance. 

7.  Corporations,  close  corporations,  co-partner- 
ships, and  proprietorships. 

8.  The  perpetuation  of  the  limited  control  which  is 
characteristic  of  close  corporations  and  which 
they  are  always  desirous  of  maintaining. 

9.  The  depreciation  of  plant  and  equipment  is  best 
provided  for  by  the  maintenance  of  a  sinking 
fund.  An  endowment  policy  fully  serves  the 
purpose,  whilst  affording  protection  against 
loss  by  death. 

10.  It  does  not,  but  it  enhances  and  stabilizes 
credit.  A  concern  lacking  the  recognized  basis 
of  credit  cannot  supply  the  deficiency  by  taking 
Business  Insurance,  but  one  enjoying  ordinary 
commercial  credit  may  increase  it  by  carrying 
Business  Insurance. 


SECTION  TWO 

Business  Insurance  for  Corporations 
and  Firms 


Contents 

SECTION  TWO 

Business  Insurance  for  Corporations — Primarily  a 
plan  for  the  solution  of  a  financial  problem — General 
principles — Opportunities  for  writing  Business  In- 
surance in  the  less  obvious  situations — Examples  in 
point — Various  secondary  purposes  of  Business  In- 
surance— Creation  of  a  sinking  fund,  provision  for 
pensioning  an  officer  or  employe,  enhancement  of 
credit,  etc. — Illustrations  of  unusual  applications  of 
Business  Insurance. 

Business   Insurance   for   "Close    Corporations" — 

Example   illustrating  chief  need   of   close   corpora- 
tions for  Business  Insurance. 

Business    Insurance    for    Co-partnerships  —  The 

field  of  numerous  small  concerns  among  which  the 
need  of  Business  Insurance  is  greatest — Proposition 
usually  a  simple  one  such  as  an  agent  may  handle 
without  special  qualification — Why  firms  fail — Con- 
trasting effects  of  carrying  and  lacking  Business 
Insurance — The  influence  of  Business  Insurance  on 
bank  and  trade  credit — Bankers  and  credit  men  as 
sources  of  prospects — Cash  values  should  be  treated 
as  a  business  asset — Financial  responsibility  of  one 
man  often  chief  basis  of  a  concern's  credit — Typical 
example  of  business  failure  which  might  have  been 
saved  by  Business  Insurance — Illustration  of  con- 
trary results  due  to  carrying  Business  Insurance — 
How  the  agent  may  increase  his  production  mate- 
rially. 


BUSINESS  INSURANCE  FOR 
CORPORATIONS 

UNDER  this  head  may  be  considered  Business 
Insurance  for  large  firms.    For  the  most  part 
the  needs  are  the  same  and  similar  proposi- 
tions are  applicable.    The  chief  differences  are  those 
of  organization  and  the  peculiar  liabilities  of  corpo- 
rations, such  as  bond  and  stock  issues. 

In  soliciting  this  class  of  cases  the  agent  will  have 
greater  need  for  knowledge  of  business  than  for 
knowledge  of  insurance.  Consideration  of  large 
cases  should  be  governed  by  the  principle  that  the 
proposition  is  primarily  a  plan  for  the  solution  of  a 
financial  problem,  employing  life  insurance  as  the 
medium  for  its  execution.  Experts  in  this  branch  of 
our  business  owe  much  of  their  success  to  the  main- 
tenance of  this  view  of  the  matter.  In  regarding  a 
case,  their  thought  is  to  fill  some  specific  need,  to 
solve  some  difficulty.  Life  insurance  is  the  means 
to  the  end  in  question.  The  inept  agent  reverses 
the  mental  arrangement.  With  him  the  uppermost 
thought  is  to  sell  life  insurance.  The  financial  prob- 
lem furnishes  the  argument.  The  difference  in  these 
attitudes,  apparently  slight,  is  in  reality  great.  The 
psychological  effect  of  the  former  method  on  both 
salesman  and  prospect  is  highly  conducive  to  suc- 
cess. The  interests  of  the  latter  are  brought  into 
the  limelight  at  the  outset.  Service  is  held  in  the 
forefront  and  life  insurance  in  the  background.  An 
adept  will  often  make  considerable  advance  in  his 
canvass  before  life  insurance  is  mentioned. 


48  BUSINESS  INSURANCE  INSTRUCTOR 

General  Principles 

The  primary  purpose  of  any  kind  of  insurance  is 
to  provide  indemnity  for  the  loss  of  a  valuable  asset. 
This  affords  the  justification  and  creates  the  insur- 
able interest  in  the  case  of  a  corporation  carrying 
life  insurance  upon  any  man  whose  life  and  activity 
comprise  a  substantial  factor  in  the  prosperity  of  the 
concern.  The  scope  of  this  principle  is  not  always 
recognized.  Agents  commonly  make  the  mistake  of 
regarding  it  as  restricted  in  its  application  to  offi- 
cers and  employes.  Experts  in  this  branch  of  under- 
writing take  a  broader  view,  with  the  result  of  secur- 
ing business  in  cases  that  are  less  obvious  than  ordi- 
narily. For  example,  an  exceptionally  able  director 
of  five  corporations,  but  not  an  officer  in  either,  was 
insured  for  a  large  sum  in  favor  of  each.  A  whole- 
sale drug  company  carries  $50,000  on  the  life  of  a 
manufacturing  chemist  who  is  not  directly  con- 
nected with  the  house,  but  it  handles  his  line  of 
preparations  extensively.  A  mechanical  engineer  is 
insured  under  a  large  policy  by  a  company  which 
engages  his  services  only  in  a  consultative  capacity. 
He  is,  however,  thoroughly  acquainted  with  the 
company's  operations  and  their  relations  to  different 
markets.  The  discontinuance  of  his  services  as  an 
adviser  would  be  a  serious  handicap  to  the  corpora- 
tion. A  novelty  house  maintains  a  $15,000  poHcy  on 
the  life  of  an  inventor  who  is  not  in  its  employ  but 
whose  ideas  it  frequently  exploits.  In  each  of  these 
cases,  as  in  almost  all  of  a  similar  character,  the 
insurance  was  placed  as  the  result  of  a  suggestion 
by  an  agent,  and  probably  would  not  have  been 
thought  of  by  the  beneficiary  concern. 

Sometimes  the  connection  is  more  remote  and  of 


BUSINESS  INSURANCE  INSTRUCTOR  49 

a  temporary  character.  Thus  heavy  insurance  was 
carried  for  three  years  on  an  engineer  who  designed 
and  supervised  an  irrigation  project  by  the  company 
that  financed  the  enterprise.  The  publishers  of  the 
late  Commodore  Peary  placed  a  policy  on  his  life 
before  his  last  expedition  to  the  North  Pole.  A 
moving  picture  corporation  placed  a  large  policy  on 
a  foreigner  who  came  to  America  for  the  purpose  of 
assisting  in  a  million-dollar  production.  The  life  of 
an  American  engineer  who  constructed  a  railroad  in 
China  was  covered  with  a  $100,000  policy  by  the 
syndicate  that  financed  the  enterprise.  The  insur- 
able interest  in  each  of  these  cases  was  unquestion- 
able, as  well  as  the  prudence  of  providing  for  indem- 
nity for  the  loss  which  would  have  ensued  in  the 
event  of  the  death  of  the  insured. 

The  secondary  purposes  of  Business  Insurance 
are  several.  The  principal  of  these  is  the  creation 
of  a  sinking  fund,  with  the  object  of  discharging 
some  deferred  liability,  such  as  the  redemption  of 
bonds,  the  renovation  of  buildings  or  the  replace- 
ment of  equipment.  In  this  connection,  too,  breadth 
of  vision  may  disclose  unusual  opportunities  for  the 
application  of  the  principle.  For  instance,  the  object 
of  the  sinking  fund  may  be  to  provide  for  the  liabil- 
ity incident  to  the  retirement  of  a  member  of  a  firm. 
In  such  a  case,  the  other  members  would  carry 
endowment  insurance  on  his  life  with  the  intent  of 
absorbing  his  interest  at  a  certain  time.  A  sec- 
ondary purpose  which  will  frequently  make  an  ap- 
peal to  a  corporation  prospect  is  the  provision  of  a 
fund  to  pension  a  valued  officer  or  employe  in  the 
event  of  superannuation  or  permanent  disability. 
An  endowment  policy,  with  the  permanent  total  dis- 


50  BUSINESS  INSURANCE  INSTRUCTOR 

ability  feature,  will  effect  both  objects,  whilst  filling 
the  primary  purpose  of  indemnifying  the  company 
in  case  of  prior  death. 

Still  another  of  these  secondary  functions  is  the 
enhancement  of  credit.  As  often  as  not  the  creditor 
originates  the  idea  when  life  insurance  is  employed 
for  this  purpose.  A  bank  sometimes  consents  to 
extend  a  line  of  credit  on  condition  of  the  borrowing 
concern  protecting  it  with  Business  Insurance.  The 
same  precaution  is  occasionally  taken  by  a  supply 
house  in  the  case  of  a  customer  concern,  the  busi- 
ness of  which  might  be  severely  shaken  by  the  death 
of  one  or  another  of  its  officers  or  members.  Cases 
of  this  kind  can  generally  be  most  favorably  orig- 
inated by  first  approaching  the  bank  or  wholesalse 
house.  An  agent  who  enjoys  the  confidence  of  men 
responsible  for  the  granting  of  loans  or  credits  will 
find  it  profitable  to  explain  the  advantages  of  this 
form  of  protection  and  ask  for  the  names  of  specific 
prospects.  When  the  agent  is  canvassing  a  prospect 
at  the  suggestion  of  the  banker  or  credit  man  it  will 
be  possible  to  make  an  impressive  point  by  saying 
something  of  the  following  sort :  "Suppose  you  call 
up  Mr.  So-and-so  and  ask  him  whether  your  taking 
Business  Insurance  would  not  affect  your  credit 
favorably.  If  he  answers  in  the  negative,  I  will 
withdraw  my  proposition." 

The  two  chief  purposes  for  which  corporations 
and  large  firms  carry  Business  Insurance  are:  1.  To 
provide  indemnity  for  the  loss  entailed  by  death, 
and  2.  To  create  a  sinking  fund.  The  former  is 
necessarily  a  feature  of  the  arrangement  under  all 
conditions. 

The  secondary  purposes  vary  widely  in  character 


BUSINESS  INSURANCE  INSTRUCTOR  51 

and  in  importance.  They  are  rarely  of  sufficient 
weight  to  furnish  the  main  motive  for  taking  Busi- 
ness Insurance,  but  they  are  often  the  most  efifective 
factors  in  creating  interest  in  the  subject  at  the  out- 
set; this  because  they  commonly  involve  novel  as- 
pects of  the  matter.  So  an  expert  salesman  some- 
times uses  a  secondary  purpose  of  Business  Insur- 
ance as  an  entering  wedge,  and  after  the  ground  has 
been  paved  for  a  serious  negotiation  presents  his 
formal  proposition,  with  the  death  indemnity  or 
sinking  fund  as  the  chief  consideration  and  the  sec- 
ondary benefits  in  their  appropriate  places. 

Illustrative  Examples 

It  is  of  the  utmost  importance  that  you  should 
understand  the  principles  underlying  Business  In- 
surance. Such  an  understanding  will  guide  you  to 
the  various  purposes  to  which  it  may  be  applied. 
We  shall,  therefore,  before  proceeding,  give  you  a 
few  more  illustrations  of  unusual  situations  in  which 
this  form  of  protection  effectually  fills  business 
needs.  It  should  be  understood  that  such  situations 
are  of  common  occurrence,  but  generally  overlooked 
by  salesmen.  If  some  of  the  statements  should  be 
virtual  repetitions  of  what  has  already  been  said, 
justification  may  be  found  in  the  extreme  desirabil- 
ity of  impressing  salesmen  with  the  ideas  involved. 

Frequently  the  stock  in  a  corporation  or  shares  in 
a  co-partnership  are  largely  held  by  one  man,  the 
balance  being  in  the  hands  of  several  younger  asso- 
ciates. It  will  be  greatly  to  the  advantage  of  the 
latter  to  make  provision  for  securing  control,  in  the 
event  of  the  former's  death,  by  carrying  Business 
Insurance  on  his  life.     He  may  be  willing  to  pay  a 


52         BUSINESS  INSURANCE  INSTRUCTOR 

share  of  the  cost,  realizing  that  the  protection  must 
tend  to  conserve  his  interests  in  the  company  or 
firm.  In  the  case  of  manufacturing  or  similar  busi- 
ness, well  established  and  operating  on  a  fixed  pol- 
icy and  under  tried  methods,  the  heirs  of  a  deceased 
stockholder  or  partner  are  apt  to  leave  his  interests 
intact.  In  comparatively  new  businesses,  and  espe- 
cially in  the  case  of  a  financial  concern  where  the 
deceased  has  been  its  mainstay,  his  heirs  are  more 
likely  to  lack  confidence  in  the  ability  of  the  surviv- 
ing officers  and  to  withdraw  money  or  sell  stock, 
either  action  probably  working  for  the  disadvantage 
of  minority  stockholders  or  junior  partners.  Such  a 
situation  as  described  above  is  comparatively  com- 
mon and  should  be  sought  for  by  salesmen. 

A  modification  of  this  situation  is  the  case  of  the 
senior  member  of  a  firm  contemplating  retirement 
at  a  certain  time.  Not  long  since,  $350,000  fifteen- 
year  endowment  was  placed  on  a  prominent  whole- 
sale merchant  of  Chicago  to  cover  the  project  in 
question.  Of  this  sum,  $250,000  was  designed  to 
enable  the  other  partners  to  absorb  the  greater  pro- 
portion of  his  interest  in  the  business,  and  $100,000 
was  taken  by  him  personally  to  augment  his  income 
after  retirement. 

Some  years  ago  a  certain  manufacturing  concern 
installed  a  new  type  of  machine  at  heavy  cost.  An 
agent  who  heard  of  the  circumstance  saw  in  it  op- 
portunity for  placing  Business  Insurance.  He  ascer- 
tained that  the  life  of  the  machine  in  question  is 
about  ten  years  and  that  in  addition  to  the  replace- 
ment requirement  the  company  would  need  exten- 
sive renovation  of  its  buildings  at  about  the  same 
time.     In  response   to  his  suggestion  the   concern 


BUSINESS  INSURANCE  INSTRUCTOR  53 

took  $400,000  of  ten-year  endowment  with  a  view  to 
creating  a  sinking  fund  for  the  purpose  of  meeting 
the  prospective  expense  mentioned,  the  insurance 
being  placed  on  four  valuable  lives. 

Sometimes  the  stockholders  of  a  corporation — 
particularly  if  it  be  newly  organized — insist  on  the 
precaution  of  Business  Insurance,  even  though  the 
attitude  of  the  officers  toward  it  may  be  lukewarm. 
Salesmen  planning  or  negotiating  a  case  of  corpora- 
tion insurance  may  find  it  effective  to  canvass  heavy 
holders  of  stock.  But  this  must  be  done  tactfully 
and  care  taken  not  to  hurt  the  sensibilities  of  impor- 
tant officers. 

The  sale  of  bond  issues  is  likely  to  be  expedited 
by  Business  Insurance,  and  financial  houses  under- 
writing such  issues  will  generally  support  the  prop- 
osition. Insurance  in  such  cases  takes  the  form  of 
provision  for  indemnity  in  the  event  of  the  prema- 
ture death  of  some  man  or  men  essential  to  the  suc- 
cess of  the  enterprise,  or  of  endowment  for  the  spe- 
cific purpose  of  meeting  the  bond  obligation  at 
maturity.  Perhaps  both  objects  are  covered  by  the 
same  transaction. 

These  are  but  a  few  of  the  many  comparatively 
unusual  situations  in  which  Business  Insurance 
serves  important  needs.  They  are  cited  with  the 
purpose  of  giving  the  agent  suggestions  and  induc- 
ing him  to  use  his  intelligence  in  the  search  for 
conditions  among  business  concerns  which  will  af- 
ford logical  grounds  for  a  proposition  of  Business 
Insurance. 


BUSINESS  INSURANCE  FOR  CLOSE 
CORPORATIONS 

CLOSE  corporations,  that  is,  those  of  which  the 
stock  is  retained  in  a  few  hands,  are  much  like 
co-partnerships  in  character,  and  their  insur- 
ance needs  are  similar.  It  should  be  noted,  however, 
that  close  corporations  are  frequently  induced  to 
take  Business  Insurance  for  the  express  purpose  of 
absorbing-  the  holding  of  a  deceased  stockholder  and 
preventing  its  falling  into  undesirable  hands.  For 
example,  three  men  own,  in  equal  proportions,  97 
per  cent  of  the  stock  in  a  prosperous  company  (the 
law  requires  at  least  five  stockholder  incorporators) 
and  each  takes  an  active  part  in  the  management. 
Upon  the  death  of  one  of  their  number  it  would  be 
unsatisfactory  to  the  survivors  to  have  his  widow 
drawing  a  large  share  of  the  profits  and  perhaps 
having  a  potent  voice  in  the  management  without 
rendering  service.  Complete  alienation  of  the  stock 
by  sale  might  create  an  even  less  desirable  situation. 
To  avoid  such  developments,  each  of  the  heavy 
stockholders  gives  to  the  corporation  an  option  on 
his  holding,  to  be  efifective  at  his  death,  and  Business 
Insurance  is  carried  on  the  three  lives  to  facilitate 
the  purchase. 

It  is  worth  while  to  absorb  this  idea,  for  many 
close  corporations  which  have  never  considered  the 
possible  consequences  of  alienation  of  stock  will  be 
induced  to  take  out  Business  Insurance  upon  a  pres- 
entation of  the  matter  in  this  light.  It  will  some- 
times be  found  that  preventive  measures  have  been 


BUSINESS  INSURANCE  INSTRUCTOR  55 

taken  to  the  extent  of  securing  the  options  of  pur- 
chase, but  that  no  provision  has  been  made  for 
assuring  the  presence  of  the  necessary  funds  to  com- 
plete the  transaction  at  the  critical  time  when  the 
concern's  bank  credit  is  apt  to  be  curtailed. 


BUSINESS  INSURANCE  FOR 
CO-PARTNERSHIPS 

CASES  which  come  within  the  category  of  Part- 
nership and  Proprietorship  Business  Insurance 
are  usually  of  a  simple  character,  demanding 
for  their  successful  conduct  little  more  than  the 
qualities  and  knowledge  required  for  success  in 
writing  domestic  insurance.  In  short,  any  agent 
may  enter  this  promising  field  with  assured  prospect 
of  adequate  return  for  his  labor. 

Every  community  contains  a  number  of  business 
enterprises  ranging  from  the  corner  grocery  or  drug 
store  to  the  machine  shop  or  jobbing  house.  Such 
establishments  are  to  be  found  even  in  rural  centers. 
A  concern  of  this  sort  rarely  possesses  any  assets 
beyond  its  equipment  and  stock  in  trade,  nor  any 
funds  but  what  are  fully  engaged  in  its  operations. 
It  is  a  fair  weather  craft,  almost  certain  to  be 
wrecked  by  the  first  storm  that  befalls.  Its  credit 
is  restricted  and  its  prosperity  depends  upon  a  con- 
tinuance of  favorable  conditions.  The  death  of  a 
partner  or  other  adverse  contingency  would,  in  all 
probability,  entail  forced  liquidation.  The  average 
business  of  the  kind  is  virtually  a  gamble,  with  the 
chances  heavily  against  it. 

Whilst  the  necessity  of  Business  Insurance  is  gen- 
erally greater  among  partnerships  than  among  cor- 
porations, its  scope  is  less  extensive  in  the  affairs  of 
the  former.  The  purposes  of  Partnership  Insurance 
are  ordinarily  limited  to  providing  indemnity  for  the 
loss  entailed  by  death,  to  the  enhancement  of  credit 
and  to  the  creation  of  a  sinking  fund  to  meet  depre- 


BUSINESS  INSURANCE  INSTRUCTOR  57 

ciation  of  plant  and  equipment  or  to  facilitate  exten- 
sion of  operation. 

Firms  frequently  fail  or  retire  from  business  on 
the  death  of  one  of  the  members.  (Of  course,  a  firm 
is  technically  and  automatically  dissolved  by  the 
death  of  a  member,  but  reorganization  is  a  mere 
formality.)  The  chief  causes  of  discontinuance  are 
the  superior  ability  or  financial  worth  of  the  de- 
ceased, impairment  of  confidence  in  the  concern  and 
curtailment  of  its  bank  and  trade  credits,  or  a  de- 
mand by  his  estate  for  a  cash  settlement  of  his  inter- 
est. Life  insurance  would  greatly  lessen  the  diffi- 
culty of  filling  the  gap  in  the  organization;  it  would 
counteract  the  effect  of  the  loss  by  increasing  the 
financial  resources  of  the  concern;  and  it  would 
afford  means  of  discharging  the  liability  to  the 
deceased's  estate  without  impairment  of  working 
capital. 

A  leading  mercantile  agency  reports  that  the 
great  majority  of  failures  among  firms  are  occa- 
sioned by  deaths  for  the  consequences  of  which  no 
financial  provision  has  been  made.  The  chief  cl 
these  consequences  are  loss  of  valuable  services,  de- 
mand by  deceased's  estate  for  cash  settlement  of  his 
interest,  and  curtailment  of  credit.  One  or  more  of 
these  crippling  conditions  almost  invariably  results 
from  the  death  of  a  partner. 

Every  co-partnership  has  one  of  these  contingen- 
cies to  count  upon  sooner  or  later — death,  retire- 
ment or  dissolution — and  the  probable  consequences 
can  generally  be  calculated  more  or  less  closely.  In 
either  of  these  events  life  insurance  will  mitigate,  if 
it  does  not  fully  offset,  the  bad  effects. 

Three    men    owned    equal    shares    in    a    business 


58  BUSINESS  INSURANCE  INSTRUCTOR 

which  they  had  built  up  to  a  highly  prosperous  con- 
dition, with  seventeen  years  of  strenuously  applied 
ability,  when  two  of  them  died  within  a  few  weeks 
of  each  other.  As  a  result,  one-third  interest  in  the 
concern  passed  to  a  woman  and  a  similar  proportion 
came  under  the  control  of  the  guardian  of  two 
minors.  The  surviving  partner  had  no  means  of 
ridding  himself  of  these  encumbrances  and  was  com- 
pelled to  put  up  with  interference  in  the  business  by 
two  persons  who  knew  nothing  about  it.  The  firm 
went  steadily  down  hill  through  several  years,  and 
during  the  deflation  period  following  the  war  was 
forced  into  bankruptcy. 

By  way  of  contrast,  here  is  an  entirely  different 
case.  About  twenty-five  years  ago  four  young  men 
formed  a  co-partnership,  with  a  combined  capital  of 
$30,000.  At  the  outset  they  took  out  Business  Insur- 
ance and  made  an  agreement  providing  for  the  ac- 
quisition of  a  deceased  member's  interest  by  the 
survivors.  The  concern  prospered  greatly  and  from 
time  to  time  additional  insurance  was  put  on  to  cor- 
respond with  the  increased  value  of  the  shares.  In 
the  course  of  time  one  after  another  of  the  partners 
died,  until  a  few  years  ago  the  sole  survivor  was  left 
in  clear  possession  of  the  entire  business,  which  has 
a  commercial  rating  in  excess  of  half  a  million  dol- 
lars. It  is  reasonable  to  believe  that  the  former  case 
might  have  had  a  similar  development,  if  the  part- 
ners had  protected  one  another's  interests  with 
Business  Insurance. 

The  possession  of  Business  Insurance  enhances 
bank  and  trade  credit.  Mercantile  agencies  report 
the  life  insurance  carried  by  corporations  and  firms. 
Credit  men  of  wholesale  and  manufacturing  com- 


BUSINESS  INSURANCE  INSTRUCTOR  59 

panics  take  it  into  account.  Life  insurance  payable 
to  the  business  frequently  enables  jobbing  and  retail 
houses  to  obtain  goods  in  excess  of  the  quantity 
which  would  be  warranted  by  the  sole  security  of 
the  capital  and  general  assets.  This  resource  is 
available  to  many  firms  whose  members  have  never 
thought  of  it.  A  large  proportion  of  them  will  be 
glad  to  avail  themselves  of  such  comparatively  easy 
means  of  extending  credit,  when  pointed  out  to 
them.  Credit  men  of  supply  houses  will  generally 
co-operate  wuth  the  agent  in  working  cases  of  this 
sort  and  will  be  especially  glad  to  help  in  placing  in- 
surance on  members  of  firms  whose  affairs  are  in 
somewhat  shaky  condition. 

Whilst  life  insurance  is  a  charge  against  the  busi- 
ness, it  is  also  an  asset  of  it.  The  constantly  in- 
creasing cash  value  of  a  policy  creates  a  reserve 
fund  that  is  immediately  available  in  time  of  need 
and  which  has  been  the  direct  means  of  saving  hun- 
dreds of  firms  from  bankruptcy  or  liquidation.  The 
books  of  a  firm  that  carries  Business  Insurance 
should  exhibit  these  cash  values,  which  are  among 
the  very  best  assets  of  the  business. 

Among  firms  it  is  frequently  the  case  that  a  large 
proportion  of  the  credit  enjoyed  by  the  concern  is 
due  to  the  financial  responsibility  of  one  man.  He 
may  be  merely  a  backer  or  silent  partner.  Perhaps 
he  is  a  man  of  extensive  interests,  with  whom  the 
firm  in  question  is  only  a  side  issue  and  his  connec- 
tion with  it  limited  to  endorsing  its  paper.  All  such 
situations  present  prospects  for  Business  Insurance. 
Of  course,  in  a  case  of  this  sort  the  active  members 
of  the  firm  would  be  mainly  interested  in  placing 
insurance  on  the  silent  partner  or  backer,  but  the 


60  BUSINESS  INSURANCE  INSTRUCTOR 

matter  involves  the  stability  of  his  investment  to 
such  an  extent  that  he  will  generally  favor  the  trans- 
action and  be  willing  to  pay  a  share  of  its  cost. 

By  way  of  illustrating  the  principles  involved  in 
small  partnership  insurance,  let  us  consider  a  typical 
case : 

Two  young  married  men  form  a  partnership  on 
the  strength  of  their  knowledge  of  some  business 
and  a  few  thousand  dollars  of  combined  savings. 
All  the  worldly  possessions  and  future  prospects  of 
the  partners  are  tied  up  in  the  infant  enterprise. 
The  venture  prospers  and  every  cent  of  surplus 
profit  is  put  back  in  order  to  effect  gradual  extension 
of  the  business,  which  scanty  credit  makes  other- 
wise impossible.  For  this  purpose  they  work  hard, 
live  frugally  and  do  not  even  spare  enough  to  pay 
for  domestic  life  insurance,  unless  it  be  in  the  pre- 
carious form  of  fraternal  insurance.  Their  entire 
dependence  and  that  of  their  families  is  upon  their 
little  business  which  has  so  bright  an  outlook  and 
which  is  sure  to  develop  into  a  highly  profitable 
property — provided  all  goes  well. 

Presently  one  of  the  partners  is  stricken  with  in- 
fluenza and  shortly  dies.  His  place  is  poorly  filled 
by  the  substitute  whom  the  survivor  hires.  The 
loss  to  the  business  is  soon  felt  in  impaired  opera- 
tion. The  increase  in  the  payroll,  for  the  widow  is 
virtually  upon  it,  entails  decrease  of  profits./  The 
widow  of  the  erstwhile  partner  becomes  dissatisfied 
with  the  returns  to  her  and  demands  a  cash  settle- 
ment of  her  late  husband's  interest.  The  business 
is  sold  for  a  mere  song  in  a  forced  market.  The  sur- 
viving partner  sinks  back  into  the  ranks  of  the  em- 
ployed,  with    less    money    than    he   had    originally 


BUSINESS  INSURANCE  INSTRUCTOR  61 

saved  and  seven  years  of  his  life  gone.  The  widow's 
share  of  the  proceeds  from  the  sale  of  the  business 
is  dissipated  in  a  few  months,  and  she — but  the  rest 
may  be  left  to  the  imagination. 

Now  let  us  consider  the  alternative  and  in  doing 
so  we  shall  see  how  Business  Insurance  in  such 
cases  embraces  domestic  insurance;  in  other  words, 
how  the  conservation  of  the  business  preserves  the 
home. 

We  will  suppose  that  these  two  young  men,  when 
they  embarked  in  business  together,  took  the  pre- 
caution of  providing  against  the  effects  of  the  pre- 
mature death  of  either,  and  it  is  reasonable  to  sup- 
pose that  they  would  have  done  so  had  the  matter 
been  brought  to  their  attention.  With  $5,000  pay- 
able to  the  survivor,  a  very  different  situation  would 
develop  from  the  death  of  the  partner.  The  insur- 
ance indemnity  would  discharge  the  claim  of  the 
widow  against  the  firm  and  give  her  a  substantial 
sum  for  herself  and  her  children.  The  surviving 
partner  would  become  sole  owner  of  the  business, 
with  unimpaired  capital.  Under  such  circumstances 
he  would  be  in  a  favorable  situation  to  hire  a  sub- 
stitute or  take  in  a  new  partner.  The  business  would 
not  be  seriously  injured  and  its  owner's  prospects  in 
life  would  not  be  destroyed,  as  in  the  case  of  failure 
to  make  provision  for  adverse  contingencies. 

The  foregoing  illustration  is  designed  to  be  of 
practical  use  to  the  agent.  Its  essential  features  are 
found  in  thousands  of  histories  of  failures  every 
year.  They  are  familiar  to  business  men  in  general, 
and  the  force  of  the  arguments  based  upon  them 
may  readily  be  reinforced  by  concrete  illustrations. 
The    agent   will    find    it    effective    to    ask   partners 


62  BUSINESS  INSURANCE  INSTRUCTOR 

whether,  in  the  event  of  the  premature  death  of  one 
of  them,  some  such  development  as  has  been  de- 
scribed would  not  transpire. 

The  prospects  should  be  reminded  that  not  only 
their  money  and  labor,  but  also  the  best  years  of 
their  lives,  are  the  stakes  that  they  have  put  up  in 
their  business  gamble.  And  that  their  families — 
wives  and  little  children — are  compelled  to  be  shar- 
ers in  the  hazard,  with  likelihood  of  bearing  the 
worst  effects  of  loss,  should  it  occur. 

The  agent  must  have  inferred  that  in  most  cases 
of  this  description  the  appeal  of  Business  Insurance 
will  be  stronger  than  that  of  domestic  insurance. 
Manj  young  men  starting  in  business  will  take  the 
former  when  they  cannot  be  induced  to  apply  for 
the  latter.  Any  agent  may  increase  his  production 
considerably  by  making  it  a  rule  to  sound  every  pos- 
sible prospect  on  the  subject  of  Business  Insurance. 
Interest  will  often  be  aroused  after  the  usual  can- 
vass for  personal  insurance  has  fallen  flat. 


BUSINESS  INSURANCE  INSTRUCTOR  63 

SECTION  TWO 
Test  Questions 

11.  What  qualifications  are  necessary  for  success- 
fully canvassing  Business  Insurance  among 
corporations  ? 

12.  What  is  the  primary  purpose  of  Business  In- 
surance? 

13.  Name  the  two  principal  secondary  purposes  of 
Business  Insurance? 

14.  Give  an  illustration  of  the  use  of  a  secondary 
purpose  as  an  entering  w^edge. 

15.  Ninety  per  cent  of  the  stock  in  a  close  corpora- 
tion is  held  by  three  men  in  equal  proportions. 
On  what  grounds  would  you  suggest  Business 
Insurance  to  them. 

16.  A  corporation  is  organized  to  manufacture  and 
market  the  invention  of  a  man  who  becomes 
the  general  manager  and  technical  expert  of 
the  concern.  A  large  tract  of  land  is  purchased, 
an  extensive  plant  erected  and  $100,000  of 
twenty-year  bonds  issued.  What  form  of  Busi- 
ness Insurance  would  fit  the  situation? 

17.  Usually  there  are  but  three  purposes  for  which 
Business  Insurance  is  taken  by  co-partnerships. 
Name  them. 

18.  What  is  the  cause  of  at  least  one-third  of  the 
failures  among  firms? 

19.  Name  some  of  the  intangible  assets  of  a  busi- 
ness concern. 

20.  In  the  case  of  a  small  firm  Business  Insurance 
is  apt  to  make  a  stronger  appeal  than  personal 
insurance.     Why  ? 


64         BUSINESS  INSURANCE  INSTRUCTOR 

SECTION  TWO 
Answers  to  Test  Questions 

11.  Knowledge  of  business  principles  and  practice. 
Ability  to  negotiate  with  men  of  aflfairs.  The 
faculty  of  logical  analysis  and  lucid  presenta- 
tion.   Patience  and  stamina. 

12.  The  primary  purpose  of  Business  Insurance  is 
to  afiford  indemnity  for  the  loss  of  valuable 
services  occasioned  by  death. 

13.  (1)  The  enhancement  and  stabilization  of 
credit.  (2)  The  creation  of  a  sinking  fund  to 
meet  various  deferred  liabilities  of  which  the 
most  common  is  depreciation  of  plant  and 
equipment. 

14.  The  agent  creates  interest  at  the  outset  by 
explaining  the  utility  of  Business  Insurance  in 
case  of  a  valued  employe  becoming  totally  dis- 
abled or  in  case  of  the  concern  desiring  to  make 
provision  for  pensioning  an  officer  or  employe. 
The  novelty  of  the  suggestion  may  secure  im- 
mediate consideration  when  the  more  common 
proposal  to  insure  a  life  would  not.  After  con- 
tact has  been  effected,  the  primary  purpose 
must,  of  course,  be  advanced. 

15.  Business  Insurance  should  be  taken  in  such  a 
case  to  prevent  the  stock  of  a  deceased  asso- 
ciate passing  into  alien  hands.  A  joint  agree- 
ment should  be  entered  into  conveying  options 
of  purchase  contingent  on  death  and  stipulat- 
ing that  the  insurance  should  be  applied  to  the 
purchase.  It  is  advisable  to  have  wives  for- 
mally express  their  consent  to  the  arrangement. 


BUSINESS  INSURANCE  INSTRUCTOR  65 

16.  The  interest  of  the  corporation  would  be  best 
served  by  placing  $100,000  of  Life  Insurance 
on  the  man  who  is  evidently  the  main  factor 
in  its  prosperity.  The  Twenty-year  Endow- 
ment plan  should  be  adopted  in  order  to  secure 
the  additional  benefit  of  a  sinking  fund  to  re- 
deem the  bonds. 

17.  (1)  To  provide  indemnity  for  the  loss  occa- 
sioned by  death.  (2)  To  protect  and  enhance 
credit.  (3)  To  create  a  sinking  fund  in  anticipa- 
tion of  depreciation  of  plant  and  equipment. 

18.  According  to  the  head  of  a  mercantile  agency, 
the  cause  of  one-third  of  all  failures  among- 
firms  is  death,  against  which  no  provision  has 
been  made,  with  the  usual  consequences  of 
weakened  organization,  curtailed  credit  and 
general  demand  for  discharge  of  liabilities. 

19.  Good-will,  reputation,  integrity,  technical 
knowledge  and  general  business  ability. 

20.  The  small  firm  is  commonly  composed  of  young 
men  who  have  staked  all  they  possess  upon  its 
success,  and  confidently  rely  upon  it  to  provide 
for  themselves  and  the  future  of  their  families. 


SECTION  THREE 


Business  Insurance  for  Proprietors, 

Farmers,  Individuals  and  Various 

Institutions 


Contents 

SECTION  THREE 

Business  Insurance  for  the  One-man  Concern — 
Each  class  of  cases  presents  features  pecuHar  to 
itself — Conditions  that  generally  obtain  in  a  one- 
man  business — Manner  in  which  Business  Insur- 
ance buttresses  the  weak  spots  in  the  one-man  en- 
terprise— Sole  proprietor  apt  to  overestimate  per- 
manency and  value  of  the  business — It  is  precarious 
dependency  for  family,  unless  protected  by  Business 
Insurance — Usual  consequences  of  the  death  of  a 
sole  proprietor — Desirable  conditions  that  may  be 
secured  by  Business  Insurance — Examples  may  be 
found  in  every  community. 

Business  Insurance  for  the  Farmer — Necessity  of 
observing  the  distinction  between  Business  Insur- 
ance and  domestic  insurance — -Court  decision  in 
point — Latter-day  farmer  is  a  business  man — En- 
dowment insurance  especially  adapted  to  needs  of 
the  farmer — Forceful  method  of  presenting  Inherit- 
ance Tax  proposition  to  the  farmer — Business  In- 
surance to  protect  the  farmer's  periodical  borrow- 
ings— Novel  method  of  presenting  proposition  to 
cover  a  mortgage — Most  common  cause  of  failure 
in  canvassing  farmers — Illustration  of  appropriate 
opening  for  Business  Insurance  canvass. 

Business  Insurance  for  the  Individual — Applica- 
tion of  Busainess  Insurance  to  personal  affairs  of 
the  individual.  Shrinkage  in  estates  commonly  due 
to  lack  of  ready  cash  at  time  of  death — Heavy  de- 
mands on  all  considerable  estates  now-a-days — Life 


insurance  most  certain  and  economical  means  of 
providing  cash  at  death — Urgent  need  of  Business 
Insurance  to  protect  speculative  ventures — Various 
examples  in  point. 

Business  Insurance  for  Educational,  Religious 
and  Social  Organizations — Alumi  Associations — 
Various  applications  of  Business  Insurance  to 
churches — Illustrative  case — Large  field  of  oppor- 
tunity in  connection  with  insurance  of  ministers — 
Detailed  description  of  method  of  canvass — Sugges- 
tion for  individual  to  endow  charitable  institution — 
Social  clubs  becoming  likely  prospects — Examples 
of  Business  Insurance  in  connection  with  various 
kinds  of  clubs — Peculiar  features  of  this  class  of 
cases. 

Group  Insurance — Legal  definition  of  Group  In- 
surance— Brief  statement  of  essential  principles  and 
practice  of  Group  Insurance — Methods  of  estimat- 
ing risks  and  regulating  rates — Variety  of  plans — 
What  Group  Insurance  does  for  the  employer — 
What  Group  Insurance  does  for  the  employe — How 
to  canvass  Group  Insurance. 


BUSINESS  INSURANCE  FOR  THE  ONE-MAN 
CONCERN 

IN  DEALING  with  Business  Insurance  under 
diflFerent  divisions,  a  much  more  important  ob- 
ject is  served  than  mere  convenience.  Each  of 
the  typical  classes  of  cases  presents  features  peculiar 
to  itself.  Consequently,  the  arguments  differ  v^ith 
the  respective  application  of  life  insurance  to  cor- 
porations, partnerships,  proprietorships  and  in- 
dividuals. In  addition  to  these  phases  of  the  sub- 
ject, we  must  consider  Business  Insurance  as  taken 
by  individuals  for  their  personal  benefit.  Instances 
in  point  are  the  insurance  which  is  taken  by  a 
banker  to  meet  the  Estates  and  Inheritance  taxes, 
that  which  is  taken  by  a  physician  to  cover  the  dan- 
ger period  in  a  speculative  investment,  or  by  a 
merchant  to  safeguard  a  mortgage  on  his  home. 

The  one-man  business  is  practically  always  a 
modest  affair.  Should  it  grow  to  a  substantial  size, 
incorporation  would  become  strongly  advisable,  if 
not  absolutely  necessary,  on  several  accounts. 

The  sole  owner  of  a  grocery,  garage,  pharmacy, 
or  other  small  enterprise,  has  exceptional  need  for 
Business  Insurance.  He  rarely  carries  it,  however, 
and  in  the  majority  of  cases  will  be  found  to  have 
never  heard  of  it.  But  the  argument  for  it  is  so 
strong  and  obvious  that  he  cannot  fail  to  be  im- 
pressed by  it. 

He  is  maintaining  his  business  as  a  means  of  live- 
lihood, but  hardly  less  as  a  provision  for  the  future 
support  of  his  family,  either  by  its  sale  or  continu- 


12         BUSINESS    INSURANCE    INSTRUCTOR 

ance  after  his  death.  Business  Insurance  therefore, 
involves  domestic  insurance  to  an  unusual  extent 
in  his  case. 

In  most  instances  a  business  of  this  sort  repre- 
sents the  entire  property  of  the  proprietor.  All  his 
resources  are  devoted  to  strengthening  it  and  the 
surplus  profits  derived  from  it  are  turned  back  for 
the  purpose  of  extending  operations. 

The  stock,  fixtures  and  bills  receivable,  less  the 
debts,  constitute  the  sum  total  of  tangible  and  mar- 
ketable assets.  These  are  the  material  basis  for 
credit  with  the  bank  and  supply  house. 

Not  infrequently,  technical  ability,  business  and 
social  record,  integrity  and  reputation,  are  potent 
factors  in  the  enhancement  of  credit.  But  these  are 
personal  qualities  which  must  expire  with  life.  Tliis 
element  of  uncertainty  impairs  their  effect  as  credit 
factors,  /even  when  they  are  uncommonly  pro- 
nounced, but,  reinforced  by  Business  Insurance, 
these  intangible  factors  may  become  the  chief  asset 
of  the  business. 

Business  Insurance,  by  safeguarding  the  bank 
and  the  supply  house  against  the  hazard  of  loss  by 
death,  induces  them  to  extent  credit  to  a  greater 
extent  than  would  be  prudent,  otherwise,  and  justi- 
fies them  in  making  liberal  allowances  for  the  per- 
sonal qualities  of  the  business  man.  This  being 
so,  the  sole  owner  of  a  business  who  neglects  to 
carry  Business  Insurance  fails  to  derive  the  poten- 
tial benefits  from  his  abstract  assets. 

The  sole  proprietor  of  a  successful  concern  gen- 
erally overestimates  its  value  and  its  permanency. 
Frequently  he  looks  upon  it  as  a  s  ubstantial  and 
certain  provision  for  his  family  after  his  death.   And 


BUSINESS    INSURANCE    INSTRUCTOR         7Z 

this  attitude  commonly  tends  to  engender  the  idea 
that  his  family  does  not  need  the  protection  of  life 
insurance. 

A  one-man  concern,  that  is  not  stabilized  by  an 
adequate  amount  of  Business  Insurance,  is  a  very 
precarious  dependence  for  the  family  of  the  pro- 
prietor after  his  death.  But,  even  when  Business 
Insurance  is  carried,  it  should  not  be  treated  as  a 
substitute  for  domestic  insurance.  The  former  is 
specifically  payable  to  the  business  and  is  subject 
to  all  legitimate  claims  against  it.  Even  if  there 
should  be  a  residue  after  the  discharge  of  all  ob- 
ligations, it  ought  not  to  be  diverted  from  the  busi- 
ness, except  in  case  of  liquidation. 

The  death  of  a  sole  proprietor  entails  relatively 
greater  loss  than  the  death  of  a  corporation  presi- 
dent or  of  a  member  of  a  firm.  In  the  first  case  the 
business  is  suddenly  deprived  of  all  intelligence 
and  direction.  Nothing  is  left  but  such  assets  as 
stock,  good-will  and  lease,  the  value  of  which  is 
largely  contingent  on  the  continuance  of  the  busi- 
ness. Naturally,  the  creditors  immediately  file  their 
claims  and  press  for  settlement.  Liquidation  is 
usually  the  only  recourse  and  if,  under  a  forced  sale, 
the  concern  pays  one  hundred  cents  on  the  dollar, 
it  is  a  rare  occurrence. 

Commercial  records  show  that  very  few  one-man 
concerns  survive  the  death  of  the  proprietor.  The 
exceptions  are  by  no  means  confined  to  the  mark- 
edly successful  business  but,  in  nearly  all  instances, 
are  those  which  carried  Business  Insurance.  This 
precaution  may  be  depended  on  to  keep  the  business 
running  or  to  insure  liquidation  under  the  most 
favorable  conditions. 


74         BUSINESS    INSURANCE    INSTRUCTOR 

The  payment,  on  the  death  of  the  sole  proprietor, 
of  a  sum  in  excess  of  the  concern's  liabilities,  wiH 
enable  the  executors  of  the  deceased's  estate  to  em- 
ploy a  competent  man  to  manage  the  business. 
Credits  will  be  curtailed,  doubtless,  but  not  to  the 
extent  of  hampering  operations.  Tangible  assets 
will  be  conserved  and  opportunity  secured  for  dis- 
posing of  the  business  on  satisfactory  terms. 

So  common  are  the  instances  where  the  payment 
of  $5,000  or  $10,000  on  the  death  of  a  proprietor 
would  have  conserved  values  of  much  greater 
amount  that,  for  lack  of  such  a  resource,  shrank  to 
little  or  nothing,  that  the  agent  need  never  be  at  a 
loss  for  concrete  illustrations  to  give  point  to  his 
arguments.  Every  community  contains  numerous 
small  concerns  to  which  the  argument  applies — one- 
man  businesses  that  need  the  protection  of  Business 
Insurance  much  more  than  the  great  corporations 
and  prosperous  partnerships  that  carry  liberal 
amounts  of  it. 


BUSINESS  INSURANCE  FOR  THE  FARMER 

LET  us  bear  in  mind  that  any  life  insurance  pay- 
able to  a  beneficiary  other  than  a  person  whose 
insurable  interest  is  based  on  dependency  or 
relationship  to  the  insured,  comes  under  the  desig- 
nation of  Business  Insurance.  The  necessity  for 
observing  this  distinction  occurs  most  commonly 
in  cases  where  individuals  insure  their  lives  for  the 
protection  of  persons  or  concerns  having  material 
interest  in  the  continuance  of  their  lives.  Instances 
in  question  are  policies  taken  out  for  the  protection 
of  creditors,  financial  backers,  parties  to  contracts 
for  performance,  etc.  This  distinction,  may  be 
emphasized  by  using  the  term  "for  the  protection 
of,"  with  reference  to  Business  Insurance,  instead 
of  "for  the  benefit  of"  which  is  usually  employed  to 
qualify  domestic  insurance. 

The  contrasting  character  of  the  insurable  inter- 
est in  the  respective  forms  of  insurance  was  strik- 
ingly illustrated  in  a  case  that  came  before  the 
courts  last  year.  A  young  man  died  leaving  a  pol- 
icy of  $3,000  payable  to  a  wealthy  aunt.  The  mother 
of  the  deceased  contested  the  claim  on  the  ground 
that  the  beneficiary  under  the  policy  had  no  insur- 
able interest  in  the  life  of  the  insured.  Ordinarily 
the  plea  might  have  held,  especially  as  the  plaintiff 
was  indigent  and  actually  dependent  upon  her  son, 
but  a  decision  was  rendered  in  favor  of  the  defen- 
dant, who  produced  evidence  that  the  policy  had 
been  taken  out  as  security  for  a  loan  made  by  her. 
In  short,  the  transaction  was  a  case  of  Business  In- 
surance, pure  and  simple. 


76         BUSINESS    INSURANCE    INSTRUCTOR 

A  touch  of  human  interest  was  lent  to  this  inci- 
dent by  the  beneficiary's  endorsement  of  the  insur- 
ance company's  check  to  the  order  of  her  sister-in- 
law,  with  a  note  to  the  effect  that  she  should  pay 
the  cost  of  the  proceedings  as  a  penalty  for  her 
folly  in  allowing  an  ignorant  or  unscrupulous  lawyer 
to  draw  her  into  unnecessary  litigation. 

We  shall  consider  various  applications  of  Busi- 
ness Insurance  to  the  needs  of  individuals,  but  at 
present  our  attention  will  be  confined  to  the  farmer 
in  this  respect. 

The  farmer  of  today  is  a  business  man.  He  prac- 
tices business  methods  and  is  receptive  to  business 
arguments.  In  recent  years  the  farmer  has  oper- 
ated on  a  larger  scale  than  formerly,  with  more 
money  invested  in  his  business  and  a  heavier  bank 
balance.  At  the  same  time  the  employment  of 
mechanical  energy  in  agriculture  has  become  more 
extensive,  creating  deferred  liability  in  the  form  of 
provision  for  depreciation  and  replacement.  The 
farmer  can  be  educated  to  an  appreciation  of  short- 
term  endowment  insurance  for  this  purpose. 

Endowments  are  especially  adapted  to  the  pur- 
poses of  the  farmer  on  account  of  his  several  needs 
for  sinking  funds.  This  form  of  accumulation  will 
supply  the  means  of  replenishing  equipment,  ex- 
tending operation,  purchasing  additional  land  and 
meeting  various  deferred  obligations.  The  propo- 
sition to  take  a  ten-year  endowment  for  the  specific 
purpose  of  retiring  a  mortgage  will  appeal  to  many 
farmers,  if  presented  properly.  It  is  in  effect  paying 
off  the  mortgage  in  ten  annual  installments,  with 
the  guarantee  that,  in  the  event  of  the  insured's 
death  within  the  period,  the  entire  encumbrance  will 


BUSINESS    INSURANCE    INSTRUCTOR         77 

be  lifted.  Mortgages  are  sometimes  placed  at  a 
reduction  of  one  per  cent  in  the  interest  rate,  in 
consideration  of  such  additional  security. 

Business  Insurance  to  provide  for  the  discharge  of 
inheritance  taxes  is  as  necessary  to  the  man  farm- 
ing on  a  large  scale  as  to  the  merchant  or  banker. 
The  writer  of  a  great  volume  annually  uses  the  fol- 
lowing method  with  marked  success  in  working 
among  wealthy  farmers : 

He  begins  by  asking  the  prospect  to  show  him 
over  the  property.  This  is  calculated  to  put  the 
farmer  into  a  favorable  frame  of  mind.  When  they 
come  in  from  the  automobile  or  horse-back  ride, 
the  salesman  says  impressively,  "There  is  a  mort- 
gage on  this  farm  which  will  have  to  be  redeemed 
within  twelve  months  of  your  death."  The  state- 
ment cannot  fail  to  excite  surprise  and  curiosity. 
The  agent  then  goes  on  to  explain  that  the  claims 
of  Federal  and  State  Governments  for  Estate  and 
Inheritance  Taxes  are  virtually  mortgages  and 
actually  first  liens  against  the  property.  He  con- 
tinues by  stating  that  the  farmer  should  take  out 
life  insurance  to  cover  this  liability  and  quotes  the 
Single  Premium  rate  for  the  appropriate  amount. 
To  this  the  farmer  is  apt  to  reply  that  he  couldn't 
raise  so  much  money,  when  the  agent  promptly  re- 
joins, "Then  how  do  you  expect  your  wife  or 
executor  to  raise  it?"  Having  let  this  point  sink 
in,  the  agent  goes  on  to  say  that  his  company  will 
take  care  of  the  matter  in  consideration  of  the 
farmer  paying  3  per  cent— or  whatever  the  ordinary 
life  premium  may  represent — of  the  necessary 
amount  during  his  life  time. 


78         BUSINESS    INSURANCE    INSTRUCTOR 

The  agent  who  practices  this  plan  closes  a  great 
majority  of  the  prospects  whom  he  canvasses.  The 
scheme  is  cleverly  devised  to  achieve  the  object  in 
view  and  if  adopted  should  be  followed  as  described. 
Each  step  in  the  process  is  calculated  to  produce  a 
desirable  psychological  effect — the  preliminary  in- 
spection of  the  property,  the  mental  jolts  and, 
finally,  the  offer  of  an  easy  solution  to  the  difficulty. 

As  a  rule,  the  farmer  is  a  regular  periodical  bor- 
rower. He  applies  to  his  banker  for  monetary  aid  in 
harvesting  his  fall  crop,  giving  a  short-time  note 
on  the  general  security  of  his  property.  During  the 
currency  of  the  loan  the  farmer  is  assuming  an  extra 
liability  for  the  discharge  of  which  he  should  make 
special  provision.  Some  agents  do  considerable 
business  in  writing  policies  to  cover  these  annual 
loans.  In  many  instances  these  policies  are  assigned 
to  the  bank  and  constantly  left  on  deposit  with  it. 
An  immediate  result  is  to  enhance  the  farmer's 
credit  and  to  improve  the  relations  between  him- 
self and  his  banker. 

The  following  account  of  a  novel  method  of  pre- 
senting a  proposition  to  cover  a  mortgage  is  culled 
from  an  insurance  journal.  An  agent,  learning  that 
a  farmer  with  whom  he  was  acquainted,  had  bor- 
rowed several  thousand  dollars  from  a  farm  loan 
company,  went  to  see  him  and  said :  "John,  I  was 
in  the  see  Judge  Smith  yesterday  and  I  just  stopped 
in  to  tell  you  that  under  a  supplementary  contract 
by  which  you  agree  to  pay  two  and  a  half  per  cent 
additional  interest  on  your  mortgage  loan,  your 
notes  will  be  cancelled  and  the  mortgage  released, 
in  the  event  you  die  before  you  have  paid  the  notes 
in  the  regular  order  of  their  due  date.     They  are 


BUSINESS    INSURANCE    INSTRUCTOR         79 

Strung  over  five  years,  you  know,  and  you  may  not 
be  here  on  the  due  date  of  the  first  semi-annual  in- 
terest payment.  If  I  were  you,  I  would  arrange 
for  that  supplemental  contract  right  away  and  play 
safe  for  the  wife  and  kiddies."  John  immediately 
decided  to  act  on  the  advice  and  his  application  was 
soon  secured. 

The  rural  banker  may  almost  always  be  relied 
upon  to  encourage  the  farmer  to  protect  his  inter- 
ests by  Business  Insurance.  Bank  loans  are  usually 
well  secured,  but  the  collection  of  a  man's  debts 
from  his  widow  is  often  attended  by  disagreeable 
circumstances  in  a  country  community.  The  de- 
ceased is  sure  to  be  an  acquaintance,  if  not  a  friend, 
of  the  banker,  and  well  known  to  the  majority  of 
the  bank's  customers.  When  provision  has  not 
been  made  through  life  insurance  for  the  discharge 
of  debts,  it  frequently  happens  that  meeting  the 
liability  entails  hardship  upon  the  family  of  the  de- 
ceased. In  such  circumstances,  the  bank  invariably 
incurs  a  certain  amount  of  odium. 

The  country  banker  generally  appreciates  these 
conditions  and  if  tactfully  approached  may  be  in- 
duced to  extend  active  assistance  to  the  agent  in 
working  Business  Insurance  among  farmers.  In 
fact,  many  country  bankers  make  a  practice  of  ad- 
vising their  customers  to  cover  loans  with  life  in- 
surance, and  in  some  instances  insist  upon  their  do- 
ing so. 

Failure  to  make  a  clear-cut  Business  Insurance 
canvass  accounts  for  a  great  deal  of  lack  of  suc- 
cess. The  agent  should  make  it  understood  at  the 
outset  that  he  is  proposing  Business  Insurance.  He 
should  explain  the  difference  between  that  form  of 


80         BUSINESS    INSURANCE    INSTRUCTOR 

protection  and  domestic  insurance.  He  should  then 
give  illustrations  of  the  practical  utility  of  the  for- 
mer to  farmers,  leading  up  to  the  particular  pur- 
poses for  which  it  would  serve  the  prospect.  This 
method  prepares  the  mind  of  the  prospect  for  the 
reception  of  the  proposition  and  enables  the  agent 
to  slip  into  the  canvass  gradually  and  smoothly 
through  the  medium  of  the  impersonal  introductory 
statements. 

To  illustrate  an  appropriate  opening:  "Mr. 
Farmer,  I  want  to  make  it  plain  at  the  outset  that 
I  am  not  considering  the  life  insurance  which  you 
carry  for  the  protection  of  your  dependents.  You 
should  not  regard  that  as  a  source  for  the  payment 
of  your  debts.  Its  proper  purpose  is  the  maintenance 
of  the  home  and  the  education  of  your  children. 
What  I  have  to  propose  is  entirely  apart  from  your 
personal  insurance.  It  is  Business  Insurance  which 
will  facilitate  your  operations  and  discharge  your 
liabilities.  This  is  the  form  of  insurance  that  the 
manufacturer,  the  merchant  and  the  banker  carry 
in  order  that  their  affairs  may  be  wound  up  with- 
out loss  at  death.  It  is  quite  as  necessary  for  you  as 
for  them,  etc." 


BUSINESS    INSURANCE    FOR    THE 
INDIVIDUAL 

THERE  are  many  ways  in  which  life  insurance 
will  serve  the  business  needs  of  an  individual 
more  effectively  than  any  other  agency.  The 
application  of  life  insurance  in  these  directions  is, 
however,  a  comparatively  recent  innovation  and  the 
majority  of  men  with  pronounced  need  of  it  will 
not  appreciate  the  fact  until  it  is  pointed  out  to 
them.  But,  in  many  instances,  the  utility  of  Busi- 
ness Insurance  is  so  obvious  that  little  difficulty  is 
experienced  in  writing  it. 

Life  insurance  is  the  only  medium  through  which 
a  person  can  have  absolute  assurance  of  a  certain 
sum  of  money  being  paid  at  his  death.  For  this 
reason  it  is  the  surest  reliance  in  making  provision 
for  the  specific  monetary  demands  which  death  en- 
tails upon  an  estate,  as  well  as  the  unforeseen  re- 
quirements for  ready  cash  which  frequently  be- 
fall executors. 

Any  trust  officer  can  cite  instances  of  heavy 
shrinkage  in  estates  occasioned  by  the  necessity  of 
selling  property  in  a  forced  market  for  the  sake  of 
securing  the  cash  demanded  by  the  exigencies  and 
ordinary  expenses  of  administration. 

A  typical  case  in  point  was  that  of  a  capitalist 
who  died  about  fifteen  years  ago.  He  was  one  of  a 
numerous  class  of  monied  men,  who  make  it  a  point 
of  pride  and  principle  to  "keep  their  money  con- 
stantly working."  They  abhor  idle  money  and 
scorn  bank  interest,  so  never  have  more  than  a 
small  balance  of  cash  on  hand. 


82         BUSINESS    INSURANCE    INSTRUCTOR 

The  man  in  question  died  worth  $800,000  in  valu- 
able but  non-liquid  property.  The  only  immediately 
available  resources  were  $5,000  of  life  insurance  and 
$730  of  cash  in  the  bank.  A  contest  arose  over  his 
will  which  was  not  decided  for  three  years,  and 
other  unexpected  demands  for  money  were  made  on 
the  estate.  One  piece  of  valuable  property  after 
another  was  sold  at  a  sacrifice  and  in  the  final  dis- 
tribution of  the  estate  the  heirs  realized  less  than 
$400,000.  A  life  insurance  policy  of  $100,000  would 
have  saved  this  heavy  loss. 

Nowadays,  the  need  for  protecting  estates  with 
life  insurance  is  much  more  imperative  than  for- 
merly, owing  to  the  Estates  and  Inheritance  taxes. 
Men  of  affairs  are  generally  awake  to  the  value  of 
Business  Insurance  in  this  connection.  These  im- 
posts are  inevitable  charges  against  every  consider- 
able estate.  They  must  be  met  promptly  and  the 
only  alternative  to  providing  for  them  by  means  of 
life  insurance  is  to  carry  liquid  assets  for  the  pur- 
pose. When  these  are  in  the  form  of  easily  con- 
vertible securities,  they  tie  up  a  much  larger  sum 
of  money  than  an  equivalent  amount  of  life  insur- 
ance demands.  Furthermore,  forced  realization  of 
the  former  in  an  unfavorable  market  must  be  at- 
tended by  considerable  shrinkage. 

The  kind  of  securities — stable  stocks  and  bonds — 
which  a  prudent  man  would  provide  for  the  settle- 
ment of  his  estate  are  poor  investments  viewed 
from  the  point  of  profit.  Life  insurance,  on  the 
other  hand,  taken  at  the  present  time  is  bound  to 
yield  handsome  returns.  It  is  paid  for  with  sixty- 
cent  dollars  which,  in  all  probability,  will  gradually 
overcome  their  depreciation  and  regain  normal  pur- 


BUSINESS    INSURANCE    INSTRUCTOR 


83 


chasing  power  in  twelve  or  fifteen  years.     So  that, 
unless  the  insured  should  fall  far  short  of  realizing 
his   life   expectancy,— in   which   case   his   insurance 
account  would   show  a  heavy  balance  of  profit,— 
his  insurance  will  be  paid  in  money  of  much  higher 
value  than  that  with  which  he  purchased  it.   Viewed 
in  this   light,  life  insurance  bought   with   a  single 
premium  cannot  fail  to  be  an  excellent  investment. 
Within    the    present    year,    the   absence    of    cash 
caused  heavy  loss  to  the  seven  million  dollar  estate 
of  a  New  York  business  man.     Inheritance,  income, 
transfer,  and  excess  profit  taxes  amounted,  in  the 
aggregate,  to  $600,000.     In  the  process  of  realizing 
this  sum  by  sacrifice  sale  of  investments,  $610,000 
was  lost,  so  that  it  cost  the  estate  more  than  two 
dollars  to  discharge  every  dollar  of  the  tax  demand. 
To  the  agent  who  is  qualified  by  knowledge  of 
the  laws  and  conditions  relating  to  the  Estate  and 
Inheritance  taxes,  the  field  for  Business  Insurance 
in    this    connection    offers    exceptionally    favorable 
opportunities. 

In  its  capacity  of  conserver  of  estates  Business 
Insurance  is  the  surest  and  most  economical  means 
of  covering  mortgages,  protecting  personal  creditors 
and  endorsers  of  paper,  and  providing  for  the  dis- 
charge of  various  obligations  which  death  would 
immediately  bring  to  maturity. 

Men  who  operate  extensively  in  the  stock  or 
grain  market,  men  who  speculate  in  oil  or  minmg 
ventures,  as  well  as  those  who  have  investments, 
options,  and  other  interests  which  depend  for  their 
value  largely  upon  the  personal  qualities  of  them- 
selves and  would   shrink  more  or  less  upon   their 


84         BUSINESS    INSURANCE    INSTRUCTOR 

death,  should  carry  adequate  lines  of  Business  In- 
surance. 

A  speculator  in  undeveloped  oil  lands,  who  always 
had  several  hundred  thousand  dollars  invested  in 
properties  and  options,  was  written  for  $150,000  of 
life  insurance  in  twenty  minutes  on  the  strength  of 
the  argument  that  his  sudden  death  would  cause 
serious  shrinkage  in  the  value  of  his  holdings. 
Apropos  of  oil  promoters,  I  may  mention,  in  pass- 
ing, the  case  of  Richmond  Levering  who  had  ap- 
plied for  $700,000  of  life  insurance,  and,  postponing 
the  examination,  was  suddenly  carried  off  by  influ- 
enza at  the  age  of  39, 

Life  insurance  is  frequently  the  only  satisfactory 
manner  in  which  a  man  can  protect  financial  back- 
ers. Unsecured  loans  in  large  sums  are  sometimes 
made  to  men  of  pronounced  ability,  with  confidence 
that  the  money  will  be  returned  with  interest,  pro- 
vided premature  death  should  not  prevent.  The 
only  way  of  guarding  against  this  adverse  con- 
tingency is  by  covering  the  hazard  with  life  insur- 
ance. 

Within  the  past  twelve  months  a  prominent  hotel 
manager  took  $1,000,000  of  insurance  to  protect  his 
backers  in  the  purchase  of  several  hotels.  The  only 
element  of  doubt  in  the  transaction  hinges  on  the 
uncertainty  of  his  living  to  develop  the  investment. 

It  is  safe  to  say  that  every  capitalist,  every  man 
of  more  than  ordinary  means,  has  some  specific 
need  for  Business  Insurance  in  connection  with  his 
personal  affairs.  He  may  not  realize  the  fact,  but 
painstaking  inquiry  about  his  affairs,  on  the  part  of 
the  agent  will  almost  invariably  reveal  some  logical 
basis  for  a  proposition  of  life  insurance.     In  such 


BUSINESS    INSURANCE    INSTRUCTOR         85 

cases,  information  regarding  the  prospect  is  more 
necessary  and  valuable  than  in  cases  of  ordinary 
domestic  insurance.  The  agent  should  not  make 
an  attempt  to  present  a  proposition  until  he  is  in 
possession  of  a  reasonable  argument  for  advanc- 
ing it. 


BUSINESS     INSURANCE     FOR     EDUCA- 
TIONAL, RELIGIOUS,  AND   SOCIAL 
INSTITUTIONS 

DURING  the  late  years  it  has  become  common 
practice  to  employ  life  insurance  in  connec- 
tion with  various  semi-public  institutions, 
for  the  purpose  of  creating  endowments  and  dis- 
charging deferred  liabilities.  The  canvass  of  such 
cases  is  widely  different  from  that  of  commercial 
organizations  and,  perhaps,  the  best  results  will  be 
obtained  from  specialization  in  them  by  a  man 
possessing  peculiar  qualifications  for  the  work. 
Former  clergymen,  teachers,  and  lawyers  have  been 
more  than  ordinarily  successful  in  this  line  of  en- 
deavor. 

In  numerous  instances  alumni  associations  have 
insured  their  members  individually  in  favor  of  the 
Alma  Mater,  although  the  first  cases  of  the  sort  oc- 
curred only  about  ten  years  ago  in  connection  with 
Williams  College,  Massachusetts,  and  Trinity  Col- 
lege, Harford.  It  goes  without  saying  that  the 
agent  engaged  on  such  business  should  be  a  college 
man.  It  may  be  added  that  Y.  M.  C.  A.  secretaries 
in  New  York  City  and  other  centers  have  been  in- 
sured in  favor  of  branches  of  the  organization. 

The  class  of  insurance  under  consideration  was 
first  written  about  thirty  years  ago  in  connection 
with  a  church,  since  when  a  number  of  kindred 
cases  have  been  closed,  but  not  nearly  as  many  as 
would  have  resulted  from  systematic  canvassing  of 
this  field.  Occasionally  a  popular  minister  has  been 
insured  in  favor  of  his  church,  but  generally  the  in- 


BUSINESS    INSURANCE    INSTRUCTOR         87 

surance  is  placed  on  members  of  the  congregation. 
The  object  may  be  the  creation  of  a  reserve  fund 
or  the  ultimate  payment  of  a  debt.  About  eighteen 
years  ago  it  became  apparent  that  the  fashionable 
residence  center  of  a  large  American  city  was 
changing.  Several  wealthy  members  of  its  leading 
church  in  the  section  insured  themselves  heavily 
for  the  benefit  of  the  institution  and  in  order  that 
it  might  have  the  means  of  continuing  its  extensive 
activities  in  spite  of  the  diminished  support  to  be 
expected  from  its  future  congregation.  As  a  result 
of  this  foresighted  provision,  the  church  in  question 
has  realized  several  substantial  sums. 

A  congregation  may  frequently  be  appealed  to 
successfully  by  a  proposal  to  supplement  a  minis- 
ter's salary  with  life  insurance  to  be  paid  for  out  of 
the  general  funds.  There  is  a  wide  opportunity  in 
this  field,  if  properly  pursued. 

The  following  paragraph  recently  appeared  in 
The  Christian  Register:  "Why  should  not  all 
churches  take  out  life  insurance  for  the  minister? 
No  institution  ever  had  a  more  devoted  body  of 
servants  than  the  church.  Neglect,  sinful  in  char- 
acter, is  being  replaced  by  regard  for  the  minister's 
material  well-being,  but  the  turn  in  the  road  has 
by  no  means  been  passed.  Far  too  many  self-deny- 
ing clergymen  are  still  left  to  survive  or  perish  as 
fate  and  old  age  may  determine.  A  minister  does 
not  ask  for  distinction,  but  he  does  demand,  and 
justifiably,  a  position  of  self-respect  and  an  old  age 
guarantee  against  want." 

In    this   connection,    some    excellent    suggestions 
lately  printed  in  the  Radiator  are  reproduced. 
Obtain  as  accurate  information  as  you  can  about 


88         BUSINESS    INSURANCE    INSTRUCTOR 

each  church.  Find  out  the  number  of  members,  the 
amount  contributed  yearly  for  church  purposes,  the 
salary  paid  to  the  minister,  the  size  of  his  family, 
the  ages  of  his  dependent  children,  etc.  These  fig- 
ures will  guide  you  in  formulating  your  plan.  Then 
present  a  clean  cut,  definite  insurance  scheme  to  the 
vestry,  the  ofificial  board,  the  parish  committee,  or 
whatever  the  body  is  called  that  deals  with  the 
business  of  the  church.  Show  how  small  will  be  the 
burden  upon  the  members  and  how  great  will  be 
the  benefit  to  the  clergyman  and  his  family  if  the 
church  makes  provision  for  them  in  case  of  death, 
total  disability  and  old  age. 

Suppose,  for  instance,  that  the  minister  is  thirty- 
five  years  old,  has  a  wife  and  two  children,  and  re- 
ceives a  salary  of  $3,000  a  year.  Say  that  600  mem- 
bers of  the  congregation  contribute  $20  each  yearly, 
on  an  average,  to  the  expenses  of  the  church.  By 
increasing  the  contributions  by  one  or  two  dollars, 
liberal  provision  could  be  made,  through  life  insur- 
ance, for  the  contingencies  of  death,  disability  and 
superannuation.  If  the  plan  is  adopted,  a  distinct 
fund  should  be  established  for  the  purpose  and  the 
congregation  should  be  pledged  to  contribution  of 
the  amount  necessary  to  its  maintenance.  It  is  part 
of  the  agent's  service  to  see  that  these  arrangements 
are  made.  The  objection  may  be  raised  that  clergy- 
men frequently  change  positions.  In  such  a  case, 
the  policy  may  either  be  turned  over  to  the  next 
church  to  which  the  insured  is  called,  with  the  un- 
derstanding that  the  plan  for  his  protection  should 
be  continued,  or  it  could  be  made  paid-up  and  pre- 
sented to  the  insured.  It  can  be  pointed  out  that 
such  a  scheme  not  only  provides  for  the  future  of 


BUSINESS    INSURANCE    INSTRUCTOR         89 

the  minister,  but  that  it  also  has  the  effect  of  in- 
creasing his  efficiency  by  relieving  him  of  anxiety 
and  worry.  If  widely  adopted  it  would  have  a 
strong  tendency  to  keep  men  in  the  service  of  the 
church  and  to  attract  others  to  the  profession.  It 
may  be  added  that  the  Christian  ministry  lost  11,000 
men  in  the  last  year. 

Boards  of  trustees  and  other  interested  individ- 
uals have  been  insured  for  the  benefit  of  charitable 
institutions.    A  large  field  for  business  exists  in  this 
connection.     The  proposition  is  attractive  to  many 
persons.    The  canvass  may  effectively  follow  these 
lines:     "Mr.   Doe,  it  is  well   known   that  you   are 
keenly  interested  in  the  welfare  of  the  so-and-so 
boy's  home.     No  doubt  you  would  like  to  make  a 
donation  of  $100,000  to  it."    The  answer  will  prob- 
ably be  something  of  this  sort:  "Indeed  I  would,  but 
I  haven't  any  such  sum  to  give  away,  unfortunately, 
and  I  should  not  feel  justified  in  making  a  bequest 
of  so  large  an  amount."    To  this  the  agent  replies : 
"Nevertheless,  you  may  endow  the  home  to  the  ex- 
tent of  $100,000  without  deprivation  to  yourself  or 
your  heirs  by  taking  life  insurance  in  that  sum  for 
the  benefit  of  the  institution  and  paying  about  4 
per  cent  on  the  principle  during  your  life."    It  is  an 
easy  matter  to  secure  a  list  of  well-to-do  supporters 
of  any  charitable  institution. 

Recently  there  has  appeared  to  be  a  tendency  on 
the  part  of  members  of  social  clubs  to  insure  their 
lives  in  favor  of  the  institutions.  This  is,  perhaps, 
the  least  promising  of  the  divisions  under  considera- 
tion. However,  the  canvass  of  a  social  club  has  the 
advantage  that  it  brings  the  agent  in  contact  with 
a  number  of  men  of  means.    It  would  seem  probable 


90  BUSINESS    INSURANCE    INSTRUCTOR 

that  group  insurance  will  be  resorted  to  in  future 
among  this  class  of  cases.  In  a  large  proportion  of 
instances  it  would  serve  the  purpose  effectively  and 
economically. 

Many  clubhouses  have  been  built  through  loans, 
facilitated  by  life  insurance.  A  recent  instance  is 
the  woman's  club  of  a  southern  city,  fifty  members 
of  which  each  took  $1,000  fifteen-year  endowment 
to  assist  in  discharging  a  $50,000  mortgage  that  will 
mature  ten  years  hence.  In  case  it  should  not  be 
renewed,  the  cash  surrender  value  of  the  insurance 
will  go  a  long  way  toward  furnishing  the  required 
sum  and,  in  the  meanwhile,  deaths  may  make  sub- 
stantial additions  to  the  redemption  fund. 

In  another  case  of  recent  date,  sixteen  founders  of 
an  exclusive  country  club,  which  started  with  an 
encumbrance  of  $80,000  on  its  property,  sixteen 
charter  members  each  paid  the  single  premium  on 
$5,000  ten-year  endowment,  with  the  club  as  bene- 
ficiary. 

A  few  years  ago,  thirty-five  members  of  a  social 
club  in  the  east  took  out  policies  of  different 
amounts  and  various  forms,  with  the  purpose  of 
endowing  the  institution.  It  is  highly  probable 
that  many  similar  transactions  might  be  effected  in 
connection  with  churches,  charitable  institutions 
and  social  organizations,  by  tactful  canvassing. 

It  may  be  well  to  draw  attention  to  some  features 
peculiar  to  this  class  of  cases.  They  involve  a  de- 
parture from  the  fundamental  principle  of  life  in- 
surance in  as  much  as  the  claim  is  not  paid  in  satis- 
faction of  a  loss.  Indeed,  the  death  of  the  insured 
is  generally  a  distinct  gain  to  the  beneficiary.  There 
is  rarely  a  true  insurable  interest.     In  fact,  the  in- 


BUSINESS    INSURANCE    INSTRUCTOR         91 

siirance  is  decidedly  speculative  in  character. 
Nevertheless,  since  the  courts  have  repeatedly  de- 
nied that  such  contracts  conflict  with  public  policy, 
and  the  underwriting-  company  is  always  fully  aware 
of  the  nature  of  the  transaction,  there  can  be  no 
doubt  about  the  validity  of  the  beneficiary's  in- 
terests. 


GROUP  INSURANCE 

GROUP  INSURANCE  is  primarily  a  device  for 
providing  life  insurance,  sometimes  combined 
with  disability  coverage,  to  all  or  the  great 
majority  of  the  members  of  one  organization,  on 
exceptionally  favorable  terms  and  under  conditions 
mutually  beneficial  to  employer  and  employes. 

Whilst  Group  Insurance  serves  its  principal  pur- 
pose by  providing  coverage  to  industrial  workers,  it 
is  well  to  recognize  the  numerous  other  appropriate 
directions  for  its  application.  It  is  adaptable  to 
clubs,  faculties  of  universities,  corps  of  school  teach- 
ers, professional  and  other  associations,  as  well  as 
all  kinds  of  municipal  organizations.  Several  cities 
have  insured  all  their  employes  in  this  manner. 

The  following  is  the  legal  definition  of  Group 
Insurance  obtaining  in  the  United  States  and  to 
which  the  practice  of  Canadian  companies  conforms : 

"Group  life  insurance  is  that  form  of  life  insurance 
covering  not  less  than  fifty  employes  (of  one  em- 
ployer), with  or  without  medical  examination,  writ- 
ten under  a  policy  issued  to  the  employer,  the  pre- 
mium on  which  is  to  be  paid  by  the  employer  or  by 
the  employer  and  employe  jointly,  and  insuring  only 
all  of  his  employes,  or  all  of  any  class  or  classes 
thereof,  determined  by  conditions  pertaining  to  the 
employment,  for  amount  of  insurance  based  upon 
some  plan  which  will  preclude  individual  selection, 
for  the  benefit  of  persons  other  than  the  employer, 
provided,  however,  that  when  the  premium  is  to  be 
paid  by  the  employer  and  employes  jointly,  and  the 
benefits  of  the  policy  are  oflfered  to  all  eligible  em- 


BUSINESS    INSURANCE    INSTRUCTOR         93 

ployes,  not  less  than  75  per  cent  of  such  employes 
may  be  insured." 

The  most  distinctive  feature  of  the  plan  is  the 
omission  of  the  customary  medical  examination.  It 
will  be  seen  that  this  condition  is  inseparable  from 
the  underlying  principles  of  the  system.  It  is  quite 
consistent  with  sound  underwriting  and  entails  no 
extra  haard.  Viewed  actuarially,  all  life  insurance 
is  operated  on  the  group  principle,  which  alone  will 
secure  the  effect  of  the  law  of  average.  It  would  be 
feasible  to  issue  a  policy  of  like  amount  on  each  of 
500  persons  casually  passing  the  home  office  of  the 
company  and  to  dispense  with  medical  examination. 
That  precaution  is  necessary  to  provide  against  ad- 
verse selection  or  the  deliberate  application  of  con- 
sciously impaired  lives. 

Preferred  occupation  groups,  such  as  members  of 
professional  associations,  clerical  staffs  and  bank 
organizations,  may  be  safely  depended  upon  to  de- 
velop a  favorable  mortality.  In  most  industrial 
groups,  ability  to  hold  the  job  indicates  a  physical 
fitness  consistent  with  the  requirements  for  the  ac- 
ceptance of  individual  life  insurance  risks.  Many 
commercial  concerns  make  the  passing  of  a  medical 
examination  a  condition  of  employment,  and  this 
practice  is  extending  rapidly.  Thus  far,  experience 
has  indicated  that  the  death  rate  in  Group  Insurance 
is  superstandard. 

As  an  offset  to  the  waiver  of  individual  examina- 
tions, the  group  risk  is  expertly  inspected  with  spe- 
cial regard  to  the  working  and  living  environment  of 
the  employes,  the  provisions  for  sanitation  and 
safety,  peculiar  occupational  hazards  and  other  con- 
ditions which  may  affect  the  risk  and  the  charge  for 


94         BUSINESS    INSURANCE    INSTRUCTOR 

it,  one  way  or  the  other.  The  effect  of  these  factors 
is  reflected  in  dividend  apportionments. 

Group  Insurance  is  usually  written  under  a  blan- 
ket contract  of  yearly  renewable  term  insurance, 
made  with  the  employer,  covering  100  or  more  of  his 
employes.  Preferred  groups,  such  as  the  office  force 
of  a  financial  house  or  the  traveling  salesmen  of  a 
wholesale  establishment,  are  sometimes  accepted 
when  numbering  not  fewer  than  50  but  less  than 
100.  In  these  cases  a  modified  medical  examination 
is  generally  required. 

To  each  of  the  members  of  the  group  is  issued  an 
individual  certificate,  naming  his  beneficiary.  This 
is  accompanied  by  a  letter  from  the  employer  set- 
ting forth  the  conditions  under  which  the  insurance 
is  provided  by  him. 

The  blanket  policy  is  usually  renewable  from  year 
to  year  indefinitely,  subject  to  readjustment  of  pre- 
mium rate  at  the  end  of  any  annual  period  or,  per- 
haps, every  five  years.  Readjustment  results  in  de- 
crease of  rate  as  often  as  otherwise.  The  general 
experience  is  that  the  average  age  and  relative  cost 
seldom  increase,  but  rather  have  a  tendency  to  de- 
crease, derived  from  the  removal  of  old  men  and  the 
constant  introduction  of  young  ones  to  the  group. 
In  most  instances  this  movement  is  sufficient  to 
counteract  the  effect  of  the  individual  advance  in  age 
among  the  group  members. 

Group  Insurance  is  susceptible  of  issue  under  a 
number  and  variety  of  plans.  At  present  the  three 
following  systems  are  those  most  widely  adopted  : 

1.  A  fixed  sum,  such  as  $1,000,  payable  to  the 
beneficiary  of  each  employe. 

Obviously,  this   method   lacks   the   advantage   of 


BUSINESS    INSURANCE    INSTRUCTOR         95 

conferring    reward    for    superiority    or    length    of 
service. 

2.  The  sum  of  one  year's  salary  or  pay,  with  a 
minimum  of  $500  and  a  maximum  of  $3,000. 

This  plan  is  in  operation  satisfactorily  in  a  num- 
ber of  establishments. 

3.  A  sum  regulated  by  length  of  service.  For 
example,  a  basic  amount  of  $1,000,  increased  by  $100 
a  year  to  a  maximum  of  $3,000.  Employes  may  be 
started  on  equal  terms  or  credit  may  be  given  for 
past  services. 

This  system  furnishes  a  strong  incentive  for  con- 
tinuance in  the  employment. 

Either  of  these  plans  is  capable  of  modification  by 
the  addition  of  a  funeral  benefit,  say  $500,  and  the 
payment  of  the  claim  in  twelve  monthly  install- 
ments. 

It  has  been  conclusively  proved  that  the  best  re- 
sults are  obtained  when  the  employer  pays  the  entire 
premium  and  the  policy  covers  the  entire  force,  ex- 
cept for  a  comparative  few  whose  term  of  service  is 
not  sufficiently  long  to  entitle  them  to  participation. 
In  the  protection  of  its  own  interests,  the  underwrit- 
ing company  will  insist  on  the  employer  paying  half 
the  premium,  at  least,  and  not  fewer  than  75  per 
cent  of  the  employes  being  included  in  the  coverage. 

If  the  employes  are  charged  with  any  portion  of 
the  cost  the  acceptance  of  the  offer  becomes  optional 
with  them.  Those  who  decline  it  will  be,  for  the 
most  part,  men  whose  families  most  need  the  pro- 
tection. In  the  event  of  such  a  one's  death  it  will 
probably  be  necessary  to  take  up  a  collection  for  the 
relief  of  his  dependents.  This  will  involve  an  outlay 
many  times  as  great  as  the  premiums  on  his  insur- 


96         BUSINESS    INSURANCE    INSTRUCTOR 

ance  would  be  lively  to  aggregate,  not  to  mention 
the  resultant  dissatisfaction  among  his  fellow  work- 
men. 

In  the  calculation  of  charges,  Group  Insurance 
follows  casualty  procedure,  inasmuch  as  the  rates 
are  regulated  by  classification  of  risks.  A  definite 
premium  cannot  be  quoted  until  after  inspection  of 
the  risk  and  consideration  of  all  the  data  respecting 
it  at  the  home  office.  It  may  be  said,  however,  that 
the  average  rates  on  normally  hazardous  groups  are 
about  1  per  cent  on  the  non-participating  plan  and 
1.15  on  the  participating.  That  is  to  say,  these  per- 
centages of  the  payroll  or  $10  and  $11.50  per  $1,000 
of  insurance,  respectively.  Preferred  risks  will  fall 
below  these  figures  and  extra-hazardous  occupa- 
tional risks  rise  above  them. 

Premiums  may  be  paid  annually,  semi-annually  or 
quarterly,  but  the  usual  practice  is  to  make  monthly 
settlements,  which  admit  of  closest  adjustments.  At 
the  inception  of  the  contract  the  underwriting  com- 
pany is  furnished  by  the  assured  employer  with  a 
census  of  all  the  employes  embraced  in  the  coverage. 
Thenceforth  the  insurance  on  the  group  operates 
automatically.  Retiring  members  are  immediately 
eliminated  from  the  protection  of  the  contract  and 
entering  members  immediately  included  under  it. 
The  employer  makes  a  monthly  report  of  such 
changes  and  the  insurance  company  returns  a  state- 
ment of  cost,  calculated  upon  the  actual  group- 
employe  exposure  for  that  period. 

The  principal  factors  in  the  production  of  the 
extraordinary  low  rates  at  which  Group  Insurance 
is  generally  written  are : 

1.    The  superstandard  mortality,  which  is  a  dis- 


BUSINESS    INSURANCE    INSTRUCTOR         97 

tinct  feature  of  the  business  when  operated  exten- 
sively. 

2.  The  avoidance  of  wastage  by  lapse.  There  is 
a  marked  tendency  toward  expansion  in  individual 
groups.  The  system  has  been  abandoned  by  very 
few  of  the  concerns  that  have  adopted  it.  One 
underwriting  company  reports  that  of  300  groups 
insured  by  it  but  two  have  been  discontinued. 

3.  The  absence  of  expense  for  medical  examina- 
tions and  the  low  cost  of  administration,  as  com- 
pared with  carrying  an  equal  number  of  individual 
risks. 

4.  The  reduced  rate  of  commission  paid  to  the 
agent,  which  is,  nevertheless,  liberal  when  the 
wholesale  character  of  the  transaction  is  considered 
and  the  fact  that  renewals  are  usually  effected  with- 
out any  action  on  his  part. 

The  foregoing  statement  embraces  all  the  essen- 
tial features  of  Group  Insurance.  They  must  be 
thoroughly  understood  and  completely  memorized 
by  the  agent,  so  that  he  may  present  them  clearly 
and  succinctly  to  the  prospect. 


WHAT  GROUP  INSURANCE  DOES  FOR 
THE  EMPLOYER 

IN  THE  present  generation  there  has  been  an 
ever-increasing  regard  on  the  part  of  employers 
for  the  welfare  of  their  employes.  This  has  been 
evinced  in  a  variety  of  ways,  with  more  or  less  good 
results.  It  is  safe  to  say,  however,  that  none  of 
these  benefactions  has  proved  so  effective  as  Group 
Insurance.  This  may  be  accounted  for  by  the  fact 
that  it  reaches  into  the  home  and  enlists  the  interest 
of  the  wives  and  other  dependents  of  the  workman. 
The  individual  certificate,  with  its  assurance  of  pro- 
tection, creates  good-will  rooting  in  the  family  circle 
and  lends  a  value  to  the  job  which  it  could  not 
derive  from  any  other  agency. 

The  following  in  point  is  a  statement  by  the  head 
of  the  Brunswick-Balke-Collender  Company,  who, 
like  many  other  employers,  found  Group  Insurance 
effective  in  securing  the  desired  results,  when  other 
welfare  measures  had  failed : 

"Like  most  manufacturers,  I  have  been  giving  a 
good  deal  of  personal  attention  for  several  years  to 
the  labor  turnover  problem.  At  one  time  or  another 
I  have  put  into  effect  plans  which  I  hoped  would,  in 
a  degree  at  least,  solve  this  problem.  Only  one  of 
them,  however,  seems  to  have  given  the  results  that 
I  had  hoped  for. 

"The  biggest  factor  in  stabilizing  the  workman 
and  preventing  him  from  becoming  a  floater  is  the 
home  influence.  In  nine  cases  out  of  ten  that  means 
the  wife. 

"Visiting  nurses  were  tried,  also  social  gatherings. 


BUSINESS    INSURANCE    INSTRUCTOR         99 

Both  fell  flat.  One  day  a  man  told  me  how  a  life 
insurance  salesman  sold  him  through  his  wife.  That 
gave  me  an  idea. 

"We  took  out  an  insurance  policy  for  every  man 
in  our  plant,  office  and  shop,  payable  to  any  bene- 
ficiary that  the  man  named.  The  result  from  the 
three  years  this  insurance  has  been  in  effect  has  been 
a  somewhat  reduced  labor  turnover  and  a  noticeably 
improved  spirit  among  the  men.  It  has  accom- 
plished what  the  other  welfare  work  did  not  accom- 
plish, and  the  cost  has  been  just  about  the  same  as 
that  of  the  other  activities  which  I  tried  out  one 
time  or  another  but  without  success." 

An  employer  may  be  moved  by  unselfish  motives 
to  cover  his  hands  with  Group  Insurance  and  find, 
in  course  of  time,  that  what  he  intended  for  philan- 
thropy turns  out  to  be  a  profitable  proceeding.  Of 
the  numerous  benefits  that  accrue  to  the  concern 
which  carries  Group  Insurance,  the  most  valuable  is 
reduction  in  turnover.  At  a  convention  of  employ- 
ment managers  held  at  Philadelphia  in  1917,  it  was 
determined  that,  taking  one  business  with  another, 
the  cost  of  replacing  an  employe  with  a  new  one  is 
from  $40  to  $45.  Gauged  by  its  effect  upon  turnover 
alone.  Group  Insurance  costs  nothing  in  the  major- 
ity of  instances,  but  actually  produces  a  profit  in 
dollars  and  cents.  With  concerns  whose  product  is 
of  unique  or  uncommon  character,  necessitating 
training  workmen  especially  for  peculiar  tasks,  re- 
duction of  hiring  and  firing  is  of  exceptional  im- 
portance. 

In  this  connection  nothing  could  be  more  impres- 
sive than  the  public  declaration  of  Mr.  E.  H.  Outer- 
bridge,    vice-president    of    the    Pantasote    Leather 


100         BUSINESS  INSURANCE  INSTRUCTOR 

Company,  the  first  concern  to  cover  a  group  of 
employes  with  Hfe,  health  and  accident  insurance. 
The  policy  in  question  has  been  in  force  since  1911. 

"Notwithstanding  a  liberal  scale  of  wages,  short 
hours,  bonus  and  extensive  welfare  provisions,  we 
experienced  a  change  in  the  personnel  of  our  force 
averaging  about  35  per  cent  annually,  due  to  no 
speciafic  cause  that  we  could  discover.  ...  It 
was  too  expensive  training  35  per  cent  of  the  force 
to  have  them  leave  just  as  they  were  becoming  use- 
ful. The  constant  changes  meant  loss  of  production 
and  loss  of  production  meant  increased  overhead, 
and  heavy  overhead  often  means  the  difference  be- 
tween a  profitable  or  a  losing  enterprise. 

"After  our  Group  Insurance  had  been  in  force  a 
couple  of  years  our  labor  turnover  had  decreased  to 
about  15  per  cent,  whilst  our  production  increased, 
and  the  proportion  of  seconds  or  inferior  product 
showed  a  distinct  reduction." 

The  men  who,  by  reason  of  advanced  age  or  phys- 
ical impairment,  could  not  obtain  any  other  kind  of 
insurance,  must  entertain  genuine  gratitude  toward 
the  employer.  In  every  considerable  group  will  be 
a  sufficient  number  of  such  men  to  compose  a  sub- 
stantial nucleus  of  loyalty  that  could  not  be  other- 
wise than  extremely  valuable  to  any  organization. 
The  purely  altruistic  satisfaction  derived  from  real- 
ization of  this  and  other  benefits  to  his  people  from 
Group  Insurance  is  not  the  least  of  the  gains  which 
the  employer  derives  from  carrying  it. 

By  creating  esprit  de  corps.  Group  Insurance  in- 
spires workmen  with  a  desire  to  promote  the  pros- 
perity of  the  establishment  to  which  they  are  at- 
tached.   Group  Insurance  enhances  the  efficiency  of 


BUSINESS  INSURANCE  INSTRUCTOR  101 

labor  by  relieving  it  of  one  of  its  chief  worries. 
Group  Insurance  has  the  effect  of  attracting  the  bet- 
ter class  of  labor.  It  has  a  distinct  advertising  value, 
as  expressed  by  the  president  of  the  Southern 
Sierras  Power  Company  of  California,  thus :  "We 
also  find  that  our  companies  have  received  good 
advertising  and  favorable  comment  from  people  out- 
side the  organization  owing  to  the  fact  that  we  are 
carrying  Group  Insurance." 

By  providing  this  form  of  protection  an  employer 
obviates  the  necessity  of  expenditures  in  other  direc- 
tions and  especially  relieves  himself  of  the  frequent 
and  disagreeable  requirement  of  extending  chari- 
table aid  to  destitute  dependents  of  deceased  em- 
ployees. 


WHAT  GROUP  INSURANCE  DOES  FOR 
THE  EMPLOYE 

IT  IS  fairly  estimated  that  15  per  cent  of  workmen 
in  industrial  establishments  are  uninsurable  and 
at  least  10  per  cent  are  at  ages  which  entail  heavy 
premium  charges.  Let  us  say  that  one-fourth  of  the 
total  number  are  unable  to  take  life  insurance.  It  is 
safe  to  assume  that  an  equal  proportion  would  not 
do  so,  even  though  they  could.  Therefore,  about 
one-half  of  the  hands  in  the  typical  commercial 
organization  are  likely  to  leave  their  dependents 
destitute,  for  very  few  wage  earners  own  anything 
at  death.  The  families  of  these  men  will  gain  tem- 
porarily relief  at  the  humiliating  expense  of  becom- 
ing beneficiaries  of  a  charitable  collection.  An  effec- 
tual remedy  for  this  condition  is  Group  Insurance. 

However,  the  group  coverage  is  not  to  be  consid- 
ered as  a  substitute  for  individual  insurance,  and 
this  fact  is  emphasized  by  the  underwriting  com- 
pany, as  well  as  by  the  employer.  Experience  has 
proved  that  Group  Insurance  is  highly  educative  in 
its  effects.  As  a  rule,  and  invariably  when  followed 
by  active  solicitation,  the  placing  of  a  blanket  policy 
is  followed  by  the  writing  of  a  large  volume  of  indi- 
vidual insurance  among  members  of  the  group. 
Thus  thousands  of  families  yearly  come  under  the 
protection  of  life  insurance,  and  become  sharers  in 
saving  investments,  for  the  great  majority  of  whom 
no  post-mortem  provision  would  otherwise  be  made. 

The  incentive  to  constant  employment  and  to 
larger  earning  is  of  practical  benefit  to  the  workman. 
Group  Insurance  not  only  furnishes  this,  but  also 


BUSINESS  INSURANCE  INSTRUCTOR         103 

creates  a  sense  of  responsibility  and  a  feeling  of  self- 
respect.  When  the  project  has  been  properly  ex- 
plained to  employees  they  understand  that  it  is 
neither  a  charity  nor  a  substitute  for  other  benefits, 
but  a  measure  of  mutual  advantage,  entailing  obli- 
gations on  both  sides. 

The  Western  Clock  Company,  when  announcing 
the  introduction  of  its  Group  Insurance  system, 
went  to  the  root  of  the  matter  with  the  following 
statement:  "This  insurance  creates  a  comfortable 
feeling  on  the  part  of  every  Westclocker— a  feeling 
that  if  anything  should  happen  the  family  would  be 
able  to  take  care  of  the  usual  expenses.  What  has 
this  to  do  with  making  clocks?  Just  this:  the  man 
who  has  the  fewest  outside  worries  can  do  better 
work  for  himself  and  his  employer." 


HOW  TO  CANVASS  GROUP  INSURANCE 

GROUP  INSURANCE  is  a  comparatively  new 
idea  to  the  layman.  Its  principles,  though 
simple,  are  novel  in  their  application.  Its 
methods  differ  in  many  respects  from  those  of  ordi- 
nary life  insurance.  Consequently  the  salesman  who 
essays  to  sell  Group  Insurance  must  qualify  himself 
by  such  a  sound  and  complete  knowledge  of  it  as 
will  enable  him  to  impart  a  clear  understanding  to 
the  prospect.  But,  even  with  this  qualification,  no 
considerable  success  will  be  possible  unless  the 
salesman  imbues  himself  with  thorough  apprecia- 
tion of  the  great  and  far-reaching  value  of  Group 
Insurance.  He  must  have  the  vision  to  see  it  as  a 
pervasive  beneficence,  operating  favorably  upon  the 
social  development  of  the  community  at  large;  cre- 
ating a  bond  of  enlightened  co-operation  between 
employer  and  employee ;  producing  contented  and 
intelligent  service,  based  on  good-will  and  mutual 
advantage ;  providing  protection  to  a  host  of  women 
and  children  who  would  otherwise  be  without  it; 
enhancing  the  self-respect  of  wage  earners ;  and  re- 
ducing labor  wastage  in  industry.  The  largest  cases 
and  the  greatest  volume  of  Group  Insurance  are 
written  by  men  who  have  this  conception  of  it — 
who  have  efi^ectually  "sold  themselves"  to  an  appre- 
ciation of  its  broadest  aspects. 

This  attitude  on  the  part  of  the  salesman  is  essen- 
tial, because  the  first  step  is  efifectively  canvass- 
ing Group  Insurance  is  to  convey  this  idea  of  its 
value  and  results  to  the  prospect.  Unless  he  can  be 
brought  to  look  upon  it  as  an  agency  for  mutual  ben- 


BUSINESS  INSURANCE  INSTRUCTOR         105 

efit  and  the  general  betterment  of  conditions  in  his 
estabhshment,  there  will  be  little  liklihood  of  ob- 
taining his  application.  The  chief  cause  of  failure  is 
the  unbalanced  presentation,— that  in  which  the 
agent  over-emphasizes  one  or  the  other  side  of  the 
proposition.  To  appeal  solely  to  the  selfish  instincts 
of  the  employer  is  no  less  faulty  than  to  advance 
the  project  as  pure  philanthropy. 

You  must  present  both  the  commercial  and  the 
altruistic   side  of  the  question.     It  is  advisable  to 
ascertain  beforehand  by  inquiry  which  of  these  con- 
siderations is  more  apt  to  influence  your  prospect.  In 
the  majority  of  instances,  the  practical  aspect  of  the 
matter  will  have  the  greater  weight,  but  the  man 
who  utterly  disregards  the  sentimental  element  can 
rarely  be  written.     In  other  words,  the  employer 
who  is  not  moved  to  any  extent  by  the  desire  to  ben- 
efit his  employees,  regardless  of  profit  to  himself, 
is  not  apt  to  incur  the  expense  of  covering  them  with 
Group  Insurance.    You  may  gain  useful  clues  to  the 
probable  attitude  of  a  prospect  toward  the  proposal 
by  ascertaining  his  practice  in  the  matter  of  wages, 
sanitation,   safety   and   general   welfare   work.      In- 
spection of  the  establishment  in  view,  as  an  ordinary 
visitor,  is  a  commendable  preliminary  to  formulat- 
ing a  proposition  for  Group  Insurance. 

Do  not,  under  any  circumstances,  allow  yourself 
to  be  drawn  into  a  discussion  of  cost  and  methods 
of  operation  until  your  prospect  has  become  con- 
vinced of  the  value  of  Group  Insurance.  In  other 
words,  create  desire  before  going  into  details.  This 
is  an  important  feature  of  the  canvass. 

As  a  rule  the  chief  executive  or  managing  head 
of  the  organization  should  be  approached  with  the 


106         BUSINESS  INSURANCE  INSTRUCTOR 

proposition,  although  occasions  will  arise  when  the 
overture  may  be  made  more  effectively  to  some 
other  official,  or  when  an  influential  director  may 
better  be  seen  at  the  outset.  If  you  have  taken 
trouble — as  you  should  invariably,  to  enquire  into 
conditions  of  the  establishment,  you  will  be  in  a 
position  to  determine  as  to  the  most  likely  action 
in  this  respect.  Make  sure  that  the  person  to 
whom  you  present  the  proposition  gains  a  sufficient 
understanding  to  explain  it  correctly  to  his  asso- 
ciates. A  brief  and  well-composed  typewritten 
statement  of  the  salient  features  of  the  proposition 
is  to  be  recommended,  but  it  should  not  be  intro- 
duced until  after  the  completion  of  your  initial  can- 
vass. If  the  matter  is  to  be  brought  before  a  board 
of  directors  or  a  committee  of  officials,  request  per- 
mission to  be  present  for  the  purpose  of  making  a 
complete  statement  of  the  plan  or  of  affording  in- 
formation and  explanations. 

Having  "sold"  the  idea  to  the  employer,  be  pre- 
pared to  "sell"  it  to  his  employees,  in  case  it  is  de- 
sired that  you  should  do  so.  Even  though  you  are 
not  asked  to  address  the  men  on  the  subject,  nor  to 
discuss  it  with  their  leaders  and  foremen,  it  is 
advisable  that  you  should  suggest  the  manner  of  its 
introduction  to  employees.  The  ultimate  success 
of  the  enterprise  will  depend  in  large  measure  upon 
the  idea  of  it  which  is  entertained  by  the  hands.  At 
the  outset  many  of  them  will  be  suspicious  of  ulter- 
ior motives  on  the  part  of  the  employer.  It  must 
be  impressed  upon  them  that  the  insurance  will  in 
no  degree  curtail  any  present  or  prospective  benefits 
from  the  concern ;  that  there  is  no  element  of  charity 
involved  in  the  matter ;  that  the  employer  is  moved 


BUSINESS  INSURANCE  INSTRUCTOR         107 

by  considerations  of  mutual  advantage;  and  that  the 
group  coverage  should  be  viewed  in  the  same  light 
as  the  employer's  provisions  for  safety,  sanitation 
and  comfort. 

The  employer  should  be  warned  against  any  ink- 
ling of  the  Group  Insurance  project  reaching  the 
men  before  a  determination  to  put  it  into  effect  has 
been  arrived  at.  Premature  discussion  is  bound  to 
lead  to  misconceptions  and  ill-founded  prejudices. 
And,  if  the  final  decision  is  adverse  to  the  proposi- 
tion, widespread  dissatisfaction  is  inevitable.  Even 
men  opposed  to  the  sugestion  in  a  nebulous  form 
will  generally  experience  a  strong  desire  for  Group 
Insurance  immediately  it  is  withdrawn  from  their 
reach.  The  influence  of  labor  union  leaders  will 
almost  invariably  be  exerted  against  Group  Insur- 
ance, because  they  have  learned  from  experience 
that  in  establishments  where  it  is  carried  there  is 
difficulty  in  inducing  strikes. 

Carry  a  specimen  of  the  contract  between  the 
Company  and  the  assured  concern,  a  copy  of  the  "in- 
dividual certificate,"  and  accompanying  letter  from 
the  employer.  These  are  merely  suggestive,  of 
course,  and  will  differ  more  or  less  in  every  actual 
case.  The  chief  difficulty  will  frequently  be  found 
in  convincing  the  prospect  that  Group  Insurance 
will  produce  the  effects  which  you  claim  for  it  and 
that  the  practical  results  will  be  commensurate  with 
the  expense.  In  this  effort  you  will  find  a  list  of 
prominent  concerns  carrying  Group  Insurance  and 
the  testimony  to  its  value  the  most  effective  means 
available. 

Most  prospects  will  be  apprehensive  of  additional 
clerical  labor  and  troublesome  details  in  connection 


108         BUSINESS  INSURANCE  INSTRUCTOR 

with  carrying  Group  Insurance.  Familiarize  your- 
self with  your  company's  method  of  collecting  pre- 
miums, paying  claims,  adjusting  charges  to  changes 
in  prsonnel,  apportioning  bonuses  and  regulating 
rates.  This  knowledge  will  enable  you  to  show  that 
very  little  trouble  and  no  extra  clerical  force  is  re- 
quired on  the  part  of  the  assured. 

You  cannot  make  better  than  a  rough  estimate  of 
cost,  since  the  actual  premium  for  the  risk  must  be 
determined  by  the  home  office,  after  consideration 
of  all  the  foctors  in  the  case.  In  typical  instances, 
however,  it  will  be  safe  to  ofifer  a  tentative  quotation 
of  1.15  per  cent,  in  clerical  groups  and  1.25  in  indus- 
trial groups,  with  reduction  by  dividends.  The  cor- 
responding non-participating  rates  would  be  .90  and 
1.05.  Do  not  fail  to  enquire  whether  the  contem- 
plated group  will  embrace  an  unusual  proportion  of 
persons  over  45  years  of  age,  and  any  over  60  years. 
Insurance  rates  do  not  advance  in  mathematical  cor- 
respondence to  increase  of  age.  To  illustrate:  If 
an  Ordinary  Life  premium  is  2.40  per  cent,  of  the 
sum  insured,  at  age  30,  it  will  be  3.93  per  cent,  at 
age  45,  and  7 HZ  per  cent,  at  age  60.  Naturally  the 
average  rate  on  an  ordinary-sized  group  will  be 
markedly  increased  by  the  presence  of  a  few  aged 
lives.  And,  as  high  salaries  are  usually  accompani- 
ments of  advanced  ages,  a  schedule  based  on  pay- 
roll will  generally  entail  greater  cost  than  one  based 
on  a  flat  sum,  although  the  aggregate  amount  at  risk 
be  the  same. 

Unless  you  are  qualified  to  write  Group  Insurance 
by  a  thorough  knowledge  of  the  subject,  do  not  at- 
tempt it,  or  restrict  your  efforts  to  creating  an  inter- 
est and,  that  having  been  accomplished,  call  in  a 


BUSINESS  INSURANCE  INSTRUCTOR         109 

capable  agent  to  close  the  case.  Don't  deprive  your- 
self of  half  the  gains  by  an  endeavor  to  secure  the 
whole. 

The  immediate  profit  to  an  agent  from  closing  a 
group  case  is  comparatively  small,  owing  to  the  fact 
that  the  insurance  is  written  on  the  Yearly  Renew- 
able Term  plan.  But  the  by-product  commonly 
yields  rich  returns,  when  the  salesman  is  alive  to  his 
opportunity.  In  many  instances,  the  group  contract 
has  led  to  Business  Insurance  applications  for  sub- 
stantial sums  by  officers  of  the  assured  company  and 
numerous  policies  on  the  lives  of  employees.  In  this 
manner  an  agent  last  year  placed  $800,000  of  ordi- 
nary insurance  as  a  sequel  to  a  group  transaction. 

The  negotiation  of  a  group  contract  will  usually 
be  more  or  less  protracted  and  it  is  sometimes  prac- 
ticable to  work  side  issues,  meanwhile.  But,  this 
activity  should  seldom  include  the  officers  who  are 
considering  the  proposition.  The  discussions  with 
them  should  be  restricted  to  the  main  question  until 
it  has  been  disposed  of  one  way  or  the  other. 


BUSINESS  INSURANCE  INSTRUCTOR         111 

SECTION  THREE 
Test  Questions 

21.  State  briefly  the  argument  for  Business  In- 
surance in  the  case  of  a  typical  one-man  con- 
cern. 

22.  Name  some  of  the  principal  purposes  of  the 
farmer  which  will  be  served  by  Business  In- 
surance. 

23.  In  the  canvass  of  the  farmer  it  is  especially 
necessary  to  have  a  clear  understanding  on  a 
certain  point.     What  is  that  point? 

24.  Name  a  few  purposes  for  which  the  business  or 
professional  man  takes  Business  Insurance  to 
protect  his  private  interests. 

25.  Why  is  life  insurance  the  best  means  of  pro- 
viding for  the  purposes  contemplated  in  the 
preceding  question? 

26.  Name  a  few  important  purposes  that  may  be 
served  by  Business  Insurance  in  connection 
with  a  church. 

27.  A  is  retiring  from  business  at  age  52,  with 
$500,(X)0  clear.  He  is  commencing  to  build  a 
$50,000  residence  and  is  backing  a  new  busi- 
ness enterprise  to  the  extent  of  $80,000.  Does 
he  need  Business  Insurance  and,  if  so,  why? 

28.  B  is  a  farmer  with  a  $12,000  mortgage  on  his 
land,  ten  years  to  run.    He  has  $2,600  lately  in- 


112         BUSINESS  INSURANCE  INSTRUCTOR 

vested  in  mechanical  equipment.  He  borrows 
from  $2,000  to  $3,000  from  his  bank  on  short 
term  note,  as  occasion  may  require.  What  are 
his  Business  Insurance  needs? 

29.  A  church  has  members  of  modest  means  and 
a  poorly  paid  minister  with  a  family.  What 
form  of  canvass  would  you  base  on  the  facts? 

30.  May  group  insurance  be  applied  to  the  mem- 
bers of  a  church  or  social  club? 


BUSINESS  INSURANXE  INSTRUCTOR         113 

SECTION  THREE 
Answers  to  Test  Questions 

21.  The  one-man  concern  is  usually  one-man  man- 
aged. When  the  directing  experience  and  abil- 
ity are  removed,  there  is  nothing  left  to  the 
business  but  the  material  assets,  which  would 
realize  but  a  small  proportion  of  their  value, 
under  forced  liquidation. 

22.  Enhancement  of  bank  credit  and  general  pro- 
vision for  the  discharge  of  debts.  Specific 
means  of  paying  off  mortgages.  Creation  of 
sinking  fund  to  meet  depreciation  of  plant,  and 
facilitate  extension  of  operations. 

23.  That  you  are  not,  as  he  is  apt  to  imagine,  trying 
to  write  him  for  more  personal  insurance.  That 
Business  Insurance  is  quite  distinct  from  per- 
sonal insurance  and  has  entirely  different  func- 
tions. 

24.  To  provide  for  Estate  and  Inheritance  taxes  and 
other  post-mortem  claims.  To  discharge  a 
mortgage  and  other  specific  indebtedness.  To 
protect  speculative  ventures  and  similar  tem- 
porary hazards. 

25.  Life  Insurance  is  the  only  medium  through 
which  a  person  can  have  absolute  assurance  of 
a  certain  sum  of  money  being  paid  at  his  death. 
The  only  feasible  alternative  is  to  carry  stable 
stocks  and  bonds.  This  will  call  for  much 
larger  immediate  outlay  than  would  life  insur- 
ance.    The  amount  that  would  be  realized  on 


114         BUSINESS  INSURANCE  INSTRUCTOR 

the  sale  of  securities  cannot  be  definitely  predi- 
cated. 

26.  The  creation  of  an  endowment  or  the  liquida- 
tion of  a  mortgage.  The  protection  of  the 
minister's  family  and  provision  for  his  old  age. 

27.  Obviously,  A  has  extensive  need  of  Business 
Insurance.  First,  he  should  provide  enough  to 
meet  Estate  and  Inheritance  taxes.  His  finan- 
cial stake  in  the  new  business  venture  should  be 
covered,  to  avoid  shrinkage  of  his  estate  in  case 
of  loss.  It  might  be  well  to  make  specific  pro- 
vision of  ready  cash  to  complete  the  residence 
in  case  of  his  early  death,  but  this  is  of  minor 
importance.  Ordinary  life  would  be  the  appro- 
priate form  to  recommend. 

28.  B  should  carry  $15,000  ten-year  endowment  to 
discharge  the  mortgage  and  replace  equipment ; 
and,  in  addition,  $3,000  ordinary  life  to  cover 
his  periodical  loans. 

29.  Clearly  some  provision  should  be  made  for  the 
minister's  family  in  case  of  his  premature  death 
and  for  himself  in  the  event  of  permanent  dis- 
ability or  superannuation.  The  feasible  plan 
would  be  to  induce  all  the  members  to  pledge 
individual  contributions  semi-annually  or  quar- 
terly to  a  "minister's  fund."  Reliance  upon  the 
general  expense  fund  is  rarely  satisfactory. 
The  per  capita  assignment  or  contribution  for 
the  purpose  would  probably  amount  to  no  more 
than  one  or  two  dollars. 

30.  It  may,  and  there  is  an  extensive  opportunity 
for  business  in  this  direction.  The  organiza- 
tions which  might  be  interested  in  group  insur- 
ance are  numerous  and  varied  in  character. 


SECTION  FOUR 


Methods  of  Canvassing  Business 

Insurance,  Various  Supplementary 

Data  and  Form  Letters 


Contents 

SECTION  FOUR 

Methods  of  Canvassing  Business  Insurance — 
Chief  requisite  of  success  in  selling  Business  In- 
surance— Features  of  the  Business  Insurance  can- 
vass— Injury  effected  by  incompetent  agents — 
Methods  of  creating  interest  in  the  subject — Prep- 
aration the  most  important  part  of  the  salesman's 
work — Employment  of  mercantile  agency  reports 
urged — Agent  must  originate  the  proposition — 
Large  class  of  prospects  that  is  quite  commonly 
overlooked — Individual  cases  likely  to  grow  out  of 
the  canvass. 

Preparation  for  the  Canvass — The  character  of 
information  that  should  be  obtained — Difficulties 
that  are  usually  met  with — Presenting  the  proposi- 
tion to  a  committee  or  board  of  directors — The  dif- 
ference in  age  objection  disposed  of — How  to  cal- 
culate the  worth  of  an  individual's  services — Busi- 
ness Insurance  a  legitimate  charge  against  operating 
expenses — Fallacy  of  the  "can't  afford  it"  argument 
— Preparation  for  the  second  interview  of  vital  im- 
portance— Lists  of  prominent  concerns  carrying 
Business  Insurance  and  expressions  of  bankers  good 
canvassing  material. 

Appropriate  Policy  Forms — Term  insurance,  its 
use  and  its  several  disadvantages — Method  of  turn- 
ing applications  for  term  insurance  to  advantage — 
Joint  versus  separate  policies — Various  objections 
to  joint  insurance — Ordinary  life  or  endowment  in- 
surance usually  the  most  appropriate  for  corpora- 
tion purposes — Great  latitude  in  form  of  insurance 


permissable  in  case  of  small  concern — Income  insur- 
ance may  best  serve  needs  of  firm — Limited  instal- 
ment policy  will  fit  certain  situation — Precaution  to 
be  observed  when  insurance  is  likely  to  be  assigned. 

Tabloid  Arguments  for  Business  Insurance. 

Expressions  of  Bankers  regarding  Business  In- 
surance. 

Skeleton  Proposition  to  cover  the  Life  of  an  Em- 
ploye. 

Illustration  of  Endowment  Policy  employed  as 
Sinking  Fund. 

Specimen  Mercantile  Agency  Report,  with  com- 
ments and  appropriate  proposition. 

Federal  Taxes  in  Relation  to  Business  Insurance 
— Proceeds  of  life  insurance  policies,  when  taxable 
— Premiums,  when  deductible  from  gross  income — 
Partnerships  classed  as  individuals — Corporations 
may  not  deduct  premiums — Creditor  Business  In- 
surance— Partnership  health  insurance — Charitable 
institutions  as  beneficiaries — Pensions  and  Disabil- 
ity compensation — Group  insurance — Income  insur- 
ance— Insurance  as  surplus  and  invested  capital. 

Estate  and  Inheritance  Taxes — Character  and  ap- 
plication of  the  respective  imposts — Assigned  poli- 
cies— State  inheritance  taxes — Insurance  payable  to 
the  estate — Valuation  of  insurance. 

Business  Insurance  Form  Letters — Two  series  of 
form  letters  for  corporations  and  firms  respectively 
— Directions  for  producing  and  mailing  form  let- 
ters— Six  specimen  letters  addressed  to  president 
of  corporation — Six  specimen  letters  addressed  to 
partners  in  a  firm. 


METHODS      OF      CANVASSING      BUSINESS 
INSURANCE 

THE  chief  requisite  for  success  in  selling  Busi- 
ness Insurance  is  understanding  of  the  prin- 
ciples pertaining  to  it,  and  that,  in  turn, 
necessitates  more  or  less  knowledge  of  common 
business  practices. 

The  appeal  to  emotions  and  the  excitement  of 
imagination,  which  are  powerful  factors  in  writing 
personal  insurance,  play  minor  parts  in  the  canvass 
of  Business  Insurance.  Sentiment  is  not  entirely 
absent,  however,  from  even  the  largest  cases,  as 
when  a  corporation  takes  an  Endowment  policy  to 
provide  for  an  officer  or  employe  after  his  term  of 
service.  And,  of  course,  sentiment  is  almost  al- 
ways a  strong  motive  in  the  consideration  of  Group 
Insurance.  In  dealing  with  small  concerns,  whose 
business  and  domestic  interests  are  closely  con- 
nected, the  usual  suggestions  of  family  protection 
may  properly  be  advanced  in  the  closing  effort. 
But  care  should  be  taken  not  to  mix  them  up  with 
the  presentation  of  the  primary  purpose.  Success 
depends  largely  upon  conveying  to  the  prospect  a 
clear  conception  of  the  difference  between  Business 
Insurance  and  personal  insurance.  Negligence  or 
weakness  in  this  respect  account  for  a  large  pro- 
portion of  failures. 

In  every  large  cit}^  the  field  of  Business  Insur 
ance  has  been  seriously  impaired  by  agents  incom- 
petent to  discuss  the  subject.  This  makes  the  ap- 
proach more  difficult  than  it  would  be  ordinarily. 
Many  prospects  will  claim  to  "know  all  about  Busi- 


BUSINESS  INSURANCE  INSTRUCTOR         121 

ness  Insurance"  and  to  have  decided  that  there  is 
nothing  in  it  for  them.  The  very  statement  is  proof 
positive  that  it  has  never  been  adequately  presented 
to  them.  It  is  no  uncommon  occurrence  for  an  intel- 
ligent man  to  say,  "Business  Insurance  is  all  right 
for  a  corporation,  but  we  are  a  firm  and  it  doesn't  ap- 
ply to  us,"  or  the  excuse  may  be  stated  conversely, 
in  either  case  betraying  complete  ignorance  of  the 
character  and  functions  of  Business  Insurance.  This 
adverse  attitude  is  most  effectively  overcome  by 
special  preparation  for  the  particular  case.  If  the 
salesman  can  suggest  a  specific  application  of  Busi- 
ness Insurance  to  the  affairs  of  the  prospect's  con- 
cern, an  interview  is  likely  to  be  granted.  Lacking 
particular  information,  he  should  suggest  one  or  an- 
other of  the  general  uses  of  Business  Insurance,  on 
the  chance  of  exciting  interest.  In  such  circum- 
stances, it  is  not  advisable  to  go  farther  before  mak- 
ing preparation.  If  the  canvass  is  pursued,  the 
agent's  ignorance  of  conditions  in  the  prospect's 
business  is  almost  sure  to  lead  to  some  inappropri- 
ate suggestion,  with  the  probable  result  of  closing 
the  opportunity.  It  will  be  better  to  postpone  the 
interview  with  some  such  statement  as  this :  "There 
is  no  doubt  but  that  Business  Insurance  would  be 
a  valuable  aid  in  the  solution  of  some  of  your  in- 
ternal problems,  but  just  how  it  might  be  most  ef- 
fectively applied  I  cannot  pretend  to  say,  at  present. 
If  you  will  kindly  give  me  some  information,  I  will 
call  again  after  preparing  a  specific  proposition." 

Needless  to  say,  the  salesman  must  be  ready  to 
ask  pertinent  questions.  What  these  should  be  in 
the  cases  of  various  prospects  will  have  been  gath- 
ered from  thoughtful  reading  of  the  foregoing  text. 


122         BUSINESS  INSURANCE  INSTRUCTOR 

It  will  not,  however,  be  necessary  to  seek  exhaus- 
tive information  from  the  prospect.  This  may  be 
obtained  from  the  mercantile  agency  report  which 
should  invariably  be  secured  before  proceeding  with 
the  case. 

The  preparation  for  a  Business  Insurance  can- 
vass is  the  most  important  part  of  the  salesman's 
work.  Creation  of  interest  in  the  proposition  and 
ultimate  success  of  the  negotiation  depend  upon 
the  formulation  of  a  logical  plan  which  may  be 
supported  by  convincing  argument.  The  Business 
Insurance  canvass  is  mainly  a  cold-blooded  appeal 
to  the  intelligence.  The  argument  is  governed  by 
consideration  for  the  prospect's  material  interests. 
The  monetary  equation  runs  right  through  the  prop- 
osition. It  is  a  question  of  practical  service  and 
more  or  less  calculable  profit.  Hazy  or  indefinite 
statements  are  fatal  to  success.  The  prospect,  like 
the  man  from  Missouri,  "must  be  shown."  And, 
in  order  to  convince  him  that  his  interests  will  be 
promoted  by  acceptance  of  the  proposition,  the 
agent  must  have  such  a  clear  understanding  of  his 
plan  and  such  a  strong  conviction  of  its  soundness 
as  can  only  be  obtained  from  thoughtful  and  ex- 
haustive consideration.  It  is  safe  to  say  that  the 
chances  of  success  would  be  much  greater  in  a  case 
where  six  hours  has  been  devoted  to  preparation  and 
but  one  to  presentation  than  in  a  case  where  one 
hour  had  been  given  to  preparing  and  six  hours 
consumed  in  the  canvass. 

It  must  be  taken  for  granted  that  the  salesman 
possesses  the  knowledge  and  intelligence  neces- 
sary to  perceive  the  application  of  life  insurance  to 
certain  business  problems.     Given  that  ability,  the 


BUSINESS  INSURANCE  INSTRUCTOR         123 

most  essential  and  important  element  in  preparation 
is  information  regarding  the  case  in  hand.  This  is 
the  reason  for  urging  invariable  employment  of 
mercantile  reports.  The  data  should  be  analyzed 
and  digested  thoroughly.  (The  writer  has  found  it 
useful  to  memorize  all  the  salient  features.)  Notes 
or  memoranda  should  then  be  made  as  a  basis  for 
the  proposal.  (See  Specimen  Mercantile  Agency 
Report,  page  86.) 

Careful  Preparation  Necessary 

If,  at  the  outset,  you  make  some  statement  about 
the  affairs  of  the  concern  which  will  indicate  inside 
knowledge,  you  are  likely  to  secure  a  hearing.  The 
chief  source  of  such  knowledge  is  the  mercantile 
report,  which  should  be  supplemented  by  inquiry 
among  the  concern's  competitors  and  customers. 
You  cannot  work  Business  Insurance  intelligently 
and  successfully  in  connection  with  corporations 
and  substantial  firms  without  employing  mercan- 
tile reports  freely.  Many  agents  do  not  use  them 
at  all  and  few  get  them  except  in  cases  that  have 
developed  hopefully.  When  you  consider  canvass- 
ing a  concern  for  Business  Insurance  a  report  should 
be  obtained  as  a  first  step.  It  ought  to  be  the  basis 
of  your  proposition.  If  a  report  should  be  the 
means  of  your  writing  one  moderate  case  that  you 
would  not  otherwise  have  closed,  it  would  pay  for 
all  the  reports  that  you  would  use  in  five  years. 
But,  the  expense  will  be  vastly  more  than  counter- 
balanced by  occasional  information  leading  to  the 
writing  of  individual  insurance. 

The    percentage    of    Business    Insurance    cases 


124         BUSINESS  INSURANCE  INSTRUCTOR 

closed,  even  by  experts,  is  much  lower  than  that  of 
domestic  insurance.'  This  fact  leads  some  agents 
to  begrudge  time  and  trouble  in  the  preparation  of 
Business  Insurance  canvasses.  No  greater  mis- 
take could  be  made.  Indeed,  it  is  responsible  for 
a  large  proportion  of  the  failures  in  this  field  of  en- 
deavor. The  more  thorough  and  painstaking  the 
preparation,  the  greater  the  chance  of  success.  It 
is  practically  certain  that  sixteen  well-prepared  ef- 
forts will  yield  a  greater  number  of  applications 
than  sixty  haphazard  approaches.  Moreover,  the 
by-product  of  the  former  method  is  bound  to  be 
considerable.  Diligent  enquiry  about  a  particular 
prospect  will  almost  invariably  disclose  leads  in 
various  directions  for  business  and  personal  insur- 
ance. 

Don't  approach  a  concern  in  the  expectation  of 
having  it  furnish  the  information  on  which  to  make 
a  proposition.  You  must  frame  the  suggestion 
yourself,  on  ascertained  facts,  before  making  the 
approach.  Nearly  every  business  concern  can  be 
benefitted  one  way  or  another  by  carrying  Business 
Insurance.  The  affairs  of  almost  every  business 
concern  involve  some  problem  which  may  be  solved 
in  whole  or  in  part  by  carrying  life  insurance.  How- 
ever, the  concern  will  rarely  perceive  the  need  or 
■  the  utility  of  Business  Insurance  until  it  is  pointed 
out. 

In  seeking  prospects  for  Business  Insurance, 
agents  are  apt  to  be  unduly  influenced  by  material 
assets  and  to  overlook  concerns  that  own  little  more 
than  office  furniture.  If  we  recognize  the  principle 
that  brains,  experience  and  other  personal  qualities 
are    usually    the    most    valuable    possessions     of 


BUSINESS  INSURANCE  INSTRUCTOR         125 

business,  it  is  obvious  that  excellent  prospects  for 
Business  Insurance  may  be  found  in  the  numerous 
class  that  includes  law  firms,  consulting  engineers, 
service  corporations,  brokerage  houses,  advertising 
and  various  other  kinds  of  agencies,  etc.  Such 
concerns  are  commonly  crippled  by  the  death  of  a 
talented  member.  They  rarely  carry  Business 
Insurance,  but  that  is  doubtless  because  they  are 
seldom  canvassed  for  it. 

A  firm  of  efficiency  engineers  affords  an  exception 
to  the  general  rule  of  negligence  in  this  respect. 
Five  years  ago  the  concern  adopted  the  practice 
of  putting  2  per  cent  of  all  net  fees  into  a  fund— 
the  "kitty"  they  call  it — to  provide  for  life  insur- 
ance and  several  other  needs.  About  twelve  months 
ago  one  of  their  number  died.  The  insurance  claim 
enabled  the  firm  to  pay  his  widow  $15,000  in  full 
settlement  and  to  add  $5,000  to  the  "kitty."  The 
total  cost  of  these  benefits  was  somewhat  less  than 
$1,000.  A  peculiar  feature  of  this  case,  which  strik- 
ingly illustrates  the  necessity  of  the  agent  originat- 
ing the  idea  of  Business  Insurance,  is  that,  whilst 
the  firm  had  frequently  recommended  Business  In- 
surance to  clients  in  the  course  of  many  years  of 
practice,  it  had  never  been  thought  of  in  connec- 
tion with  themselves,  until  an  agent  broached  the 
proposition. 

Even  though  preparation  will  assuredly  increase 
the  proportion  of  successes,  many  cases  will  fall 
flat  after  much  work  has  been  done  on  them.  This 
is  an  inevitable  feature  of  writing  big  business,  but 
commercial  insurance  canvasses  generally  com- 
pensate for  thought  and  labor.  In  the  majority  of 
cases,  a  wide-awake  agent  will  contrive  to  secure 


126         BUSINESS  INSURANCE  INSTRUCTOR 

some   individual   applications,   whether    or   not   he 
places  Business  Insurance. 

Some  knowledge  of  the  physical  aspects  of  your 
prospect's  business  will  be  of  advantage.  For  exam- 
ple, it  is  advisable  to  inspect  a  manufacturing  plant, 
as  a  casual  visitor,  before  making  your  approach. 
Even  though  you  should  not  gain  any  information 
bearing  upon  your  proposition,  you  will  get  closer 
to  your  prospect  by  displaying  some  familiarity 
with  his  operations. 

The  canvass  of  large  business  concerns  will  bring 
you  in  contact  with  men  who  appreciate  lucid  and 
terse  statements.  Your  proposition  must  be  re- 
hearsed until  it  is  perfectly  clear  in  your  mind  and 
you  are  capable  of  stating  it  briefly  and  pointedly. 
Sometimes  a  typewritten  statement  will  strengthen 
the  presentation  of  the  proposition. 

Don't  spare  pains  in  the  preparation  for  Business 
Insurance  canvasses  of  large  cases.  Success  de- 
pends upon  the  formulation  of  an  appropriate  prop- 
osition and  the  presentation  of  it  in  a  convincing 
manner. 


PREPARATION  FOR  THE  CANVASS 

BEFORE  approaching  prospects  for  Business 
Insurance  it  is  important  to  ascertain  upon 
what  specific  person  or  persons  the  effort  is 
to  be  directed.  A  common  mistake,  which  often 
creates  later  difficulties,  is  to  wait  until  after  the 
negotiation  has  been  opened  for  this  information. 

In  case  of  a  corporation,  find  out  which  of  the 
officers  had  best  be  approached— it  will  not  neces- 
sarily be  the  president— and  whether  any  director 
exercises  more  than  ordinary  influence  over  the 
board.  In  case  of  a  firm,  it  is  desirable  to  know  the 
division  of  the  shares  and  which  of  the  partners 
manages  the  concern's  financial  affairs.  In  case  of 
a  close  corporation,  you  must  know  how  the  stock 
is  distributed. 

The  information  in  question  is  easily  obtainable 
through  a  mercantile  report  and  personal  inquiry. 
The  object  of  it  is  to  enable  the  salesman  to  open 
the  canvass  under  the  most  favorable  conditions. 
Many  a  promising  case  has  fallen  through  because 
the  wrong  person  was  approached  in  the  first  in- 
stance. 

The  agent  who  specializes  in  Business  Insurance 
for  large  concerns  must  have  an  infinite  fund  of 
patience  and  the  fortitude  to  bear  severe  disappoint- 
ment. It  will  sometimes  happen  that,  after  he  has 
made  careful  preparation  for  a  case  and  worked 
hard  on  it  during  several  weeks,  his  proposition  is 
rejected  when  success  seemed  to  be  in  sight.  In 
such  cases,  however,  if  the  agent's  work  has  been 


128         BUSINESS  INSURANCE  INSTRUCTOR 

well  done,  he  will  generally  have  laid  the  founda- 
tion for  some  individual  insurance. 

Business  Insurance  deals  of  magnitude  are  usu- 
ally long  drawn  out  and  interrupted  by  postpone- 
ments, obstructions  and  delays.  The  opposition  of 
one  person  is  overcome  only  to  be  succeeded  by  the 
objections  of  another.  A  difficulty  is  hardly  dis- 
posed of  when  a  fresh  and  unexpected  one  takes  its 
place.  Determination  and  cheerful  patience  are  nec- 
essary to  carry  through  a  negotiation  under  such 
circumstances.  The  agent  may  be  able  to  fill  in 
breaks  with  canvasses  for  personal  insurance,  but 
he  should  keep  it  distinctly  apart  from  the  main 
issue.  As  a  rule,  it  is  advisable  to  postpone  the 
working  of  individual  cases  until  the  Business  In- 
surance proposition  has  been  disposed  of. 

It  is  hardly  necessary  to  state  that  the  agent 
should  take  the  earliest  opportunity  to  let  the  pros- 
pect know  that  considerable  time  and  thought  have 
been  spent  on  the  preparation  of  the  case.  The 
statement  should  be  supported  by  a  show  of  per- 
tinent knowledge  and  a  proposition  of  practical 
application. 

Hints  as  to  the  Canvass 

In  most  instances  it  will  be  necessary  to  explain 
your  proposition  to  more  than  one  person.  It  will 
generally  be  advantageous  to  interview  them  sep- 
arately. Discussions  with  several  persons  at  the 
same  time  are  difficult  and  usually  unsatisfactory. 

If  your  proposal  is  to  be  submitted  to  a  committee 
or  board  of  directors,  it  is  of  vital  importance  that 
the  official  who  will  present  it  has  a  thorough  under- 
standing, as  well  as  a  favorable  appreciation,  of  it. 


BUSINESS  INSURANCE  INSTRUCTOR         129 

In  addition  to  posting  him,  the  salesman  should  put 
him  in  possession  of  a  typewritten  summary  of  the 
proposition,  with  the  main  arguments  for  its  accept- 
ance, and  all  necessary  figures.    Opinions  of  experts 
differ  as  to  the  advisability  of  the  salesman  appear- 
ing on  such  an  occasion.    The  writer  is  decidedly  of 
the  belief  that  the  agent  should  make  presentation 
of  his  proposition  in  person,  if  possible.     At  a  sub- 
sequent meeting  of  the  board  to  decide  the  question 
it  will  generally  be  advisable  for  the  agent  to  refrain 
from  appearing,  but  to  remain  close  at  hand  in  order 
to  furnish  any  information  that  may  be  required.    If 
this  course  is  followed,  each  member  of  the  board  or 
committee  should  be  supplied  with  the  typewritten 
statement  of  the  proposition  immediately  after  the 
salesman's  presentation  of  it.    The  statement  should 
be  supplemented  by  a  list  of  prominent  local  con- 
cerns that  carry  Business  Insurance.     Reference  by 
the  directors  or  committeemen  to  some  of  these  con- 
cerns will  doubtless  result  in  endorsement  of  Busi- 
ness   Insurance,   but   that   advantage   is   apt   to   be 
somewhat  discounted  by  recommendation  of  other 
companies  or  agents.     Despite  that  possibility,  the 
salesman  is  advised  to  adopt  the  suggested  practice. 
It  commonly  happens,  in  the  case  of  two  or  three 
partners  with  considerable  difference  in   age,   that 
the  youngest  considers  himself  at  a  disadvantage 
because  the  cost  of  insuring  the  elder  member  is 
much  greater.    This  fallacy  is  founded  on  a  miscon- 
ception of  the  situation.     The  transaction  is  a  joint 
one  for  mutual  benefit  and  at  mutual  expense.    The 
firm,  not  the  individuals,  pays  the  premiums,  and 
the  firm,  not  the  individuals,  enjoys  the  benefits.    In 
case  of  the  insurance  being  cashed  in,  the  positions 


130         BUSINESS  INSURANCE  INSTRUCTOR 

would  be  reversed  and  the  policy  on  the  elder  man 
would  contribute  the  greater  surrender  value.  If 
the  duties  of  one  partner  necessitated  the  employ- 
ment of  an  exceptionally  high-salaried  secretary  or 
the  use  of  an  exceptionally  costly  desk,  the  other 
would  view  the  matter  as  one  of  common  interest 
and  find  no  fault  with  it.  He  should  take  the  same 
attitude  toward  the  fact  that  the  greater  chance  of 
his  associate's  death  imposes  a  heavier  premium 
payment  on  the  concern  than  in  his  case.  In  short, 
Business  Insurance  is  a  firm  charge  and  a  firm  asset. 

In  a  canvass  or  in  the  presentation  of  a  proposi- 
tion it  is  frequently  desirable  to  make  a  calculation 
of  the  worth  of  an  individual's  services.  There  are 
two  ways  of  arriving  at  the  result.  The  concern's 
estimate  of  the  proportion  of  its  annual  profits 
attributable  to  the  individual's  services  may  be 
taken  as  a  basis,  or  the  remuneration  which  he  re- 
ceives. For  example,  using  the  latter  basis,  let  us 
assume  that  a  man  35  years  of  age  is  receiving  a 
salary  of  $10,000  a  year.  Using  the  Annuity  Table 
at  6  per  cent,  we  find  that  the  present  worth  of  his 
future  services  is  about  $128,000.  In  the  event  of 
his  death  there  will  be  a  definite  monetary  loss, 
approximately  calculable,  just  as  there  would  be  in 
case  of  a  building  being  destroyed  by  fire. 

Occasionally  the  agent  will  come  across  members 
of  firms  who  look  upon  Business  Insurance  as  a 
personal  affair  and  consider  that  it  should  be  paid 
for  out  of  profits.  This  is  a  thoroughly  illogical 
attitude.  Business  Insurance,  like  fire  or  liability 
insurance,  is  a  legitimate  expense.  Its  benefits  are 
indirectly  extended  to  everyone  who  has  any  deal- 
ings with  the  concern.     Its  premium  outlay  should 


BUSINESS  INSURANCE  INSTRUCTOR         131 

be  absorbed  in  the  cost  of  production  or  operation 
and  ultimately  paid  for  by  the  consumer. 

When  a  concern  declares  that  it  cannot  afford  to 
divert  the  money  required  for  Business  Insurance 
premiums  from  its  working  capital  because  the  lat- 
ter is  earning  extraordinary  profits,  the  prospect  is 
furnishing  the  agent  with  a  strong  argument  in 
favor  of  his  proposition.  The  extraordinary  profits 
are  dependent  on  extraordinary  ability  which,  in  its 
turn,  is  dependent  upon  continuation  of  life.  The 
risk  of  loss  and  the  wisdom  of  providing  for  indem- 
nity are  equally  obvious. 

No  matter  how  carefully  you  may  prepare  your 
proposition,  it  will  rarely  be  flawless  or  complete. 
But  the  first  interview  should  enable  you  to  gain  the 
information  necessary  to  make  it  so  and  otherwise 
put  you  in  a  position  to  strengthen  your  canvass. 

Preparation  should  be  made  for  the  second  inter- 
view by  readjusting  the  proposition,  if  necessary, 
and  by  reviewing  the  whole  situation  in  the  light  of 
the  first  interview.  Many  agents  fail  to  realize  the 
importance  of  the  second  interview,  and  fall  down 
at  this  stage  of  the  negotiation.  In  a  majority  of 
instances,  perhaps,  this  is  the  critical  stage  of  the 
transaction.  The  interest  which  has  been  excited 
by  the  preliminaries  is  either  strengthened  or  it  dies 
out.  Usually  the  prospect  approaches  the  second 
interview  in  the  expectation  of  hearing  something 
impressive  and,  if  he  is  disappointed,  consideration 
of  the  matter  is  abandoned  there  and  then.  In  many 
cases,  careful  preparation  for  the  second  interview 
is  of  greater  importance  than  preparation  for  the 
approach, 

A  list  of  prominent  concerns  carrying  Business 


132         BUSINESS  INSURANCE  INSTRUCTOR 

Insurance  might  have  been  added  to  the  "Instruc- 
tor," but  they  are  so  numerous  that  the  names  of 
only  the  best  known  would  fill  many  pages.  It  is 
very  desirable,  however,  that  the  salesman  should 
carry  such  a  list,  which  should  be  made  up  mainly 
of  cases  in  his  city.  Expressions  of  bankers,  finan- 
ciers and  merchants  also  make  efifective  canvassing 
material  and  a  few  are  appended.  Additional  data 
of  this  sort  is  easily  obtainable  from  various  sources. 
Indeed,  the  insurance  journals  frequently  print  the 
strongest  testimony  to  the  value  of  Business  Insur- 
ance, gathered  from  such  sources.  It  is,  however, 
becoming  constantly  less  necessary  to  use  such  ma- 
terial in  canvassing  the  larger  concerns,  among 
which  the  value  of  Business  Insurance  is  now 
widely  appreciated.  The  same  cannot  be  said  of  the 
numerous  small  firms  and  one-man  concerns  which 
have  not  yet  been  extensively  canvassed  for  Busi- 
ness Insurance.  In  such  cases  the  agent  will  find 
illustrations  drawn  from  the  immediate  business 
community  to  be  the  most  efifective  in  influence,  and 
especially  those  drawn  from  the  prospect's  line  of 
business. 


APPROPRIATE  POLICY  FORMS 

HAVE  dealt  at  length  on  the  purposes  of  Busi- 
ness Insurance,  with  typical  examples,  because 
the  most  important  qualification  of  the  agent  for 
success  in  this  branch  of  our  business  is  understand- 
ing of  the  principles  involved  and  consequent  ability 
to  detect  fields  for  their  practical  application.  In 
short,  the  discovery  of  a  real  need  for  Business 
Insurance  and  the  formulation  of  a  logical  proposi- 
tion, in  accordance  with  the  conditions  of  the  case, 
constitute  the  chief  part  of  the  salesman's  work  in 
this  connection. 

We  will  now  proceed  to  consideration  of  various 
forms  of  insurance  which  may  be  fitly  recommended 
in  certain  circumstances. 

Term  Insurance 

The  principle  of  avoiding  unnecessary  withdrawal 
from  working  capital  will  occasionally  justify  the 
taking  of  Term  Insurance,  but  only  when  it  is  prac- 
tically certain  that  the  need  of  the  protection  will 
not  extend  beyond  six  or  seven  years.  After  that 
period  the  net  cost  begins  to  be  increasingly  less 
under  an  ordinary  life  policy.  Term  insurance  may 
be  employed  properly  as  extra  or  additional  cover- 
age when  it  is  desired  to  provide  protection  against 
some  special  hazard  or  liability  which  will  exist  for 
no  more  than  a  few  years.  When  this  form  is  used 
to  serve  the  main  purposes  of  Business  Insurance, 
it  usually  proves  to  be  disappointing  in  the  long  run. 
The  entire  absence  of  surrender  values  from  term 
insurance  is  another  objectionable  condition.     The 


134         BUSINESS  INSURANCE  INSTRUCTOR 

assured  may  not  appreciate  this  as  fully  as  an 
assignee  might.  In  case  of  a  policy  being  assigned 
to  a  bank  or  other  creditor,  an  extended  insurance 
option  might  add  substantially  to  its  value  as  pro- 
tection against  loss.  An  instance  in  point  is  that  of 
a  shoe  jobbing  house  of  Chicago  which,  several 
years  ago,  assigned  a  policy  in  connection  with  a 
loan  and  failed  without  discharging  the  obligation. 
The  creditor  maintained  the  insurance  on  the  exten- 
sion provided  by  the  contract  and  in  a  few  years' 
time  collected  his  debt  in  full,  through  the  death  of 
the  man  covered  by  the  policy.  By  drawing  the 
attention  of  a  banker  to  this  weak  point  in  term  in- 
surance, an  agent  secured  an  application  for  $25,000 
on  the  ordinary  life  plan  when  the  borrower  desired 
to  take  term  insurance. 

It  is  rarely  possible  to  fix  a  limit  to  the  time  dur- 
ing which  insurance  protection  will  be  required.  In 
an  active  business  new  liabilities  and  fresh  risks  are 
constantly  developing.  Many  concerns  that  start 
with  a  term  policy,  believing  that  they  will  not 
require  to  carry  it  till  the  end  of  the  first  period, 
find  that  their  interests  compel  a  renewal  at  a  higher 
rate,  and  then  wish  that  they  had  taken  a  permanent 
form  at  the  outset.  In  nearly  every  case,  term  in- 
surance should  be  avoided  on  account  of  the  insured, 
the  company,  and  the  agent. 

In  several  instances  where  concerns  insisted  on 
taking  term  policies,  the  writer  contrived  to  improve 
the  situation  by  a  device  which  may  be  best  ex- 
plained by  citing  actual  cases. 

A  hotel  company  decided  to  place  a  $20,000 
twenty-year  term  policy  on  its  manager.  At  my 
suggestion  he  arranged  with  the  company  to  make 


BUSINESS  INSURANCE  INSTRUCTOR         135 

it  a  twenty  payment  life  contract.  He  undertook  to 
pay  the  premiums  in  consideration  of  the  company 
allowing  him  the  term  rate  in  cash.  He  clearly 
understood  that  his  death  within  the  period  would 
entail  considerable  loss  to  his  estate  on  account  of 
his  premium  outlay  on  the  policy.  However,  he 
lived  to  enjoy  what  was  in  all  probability  the  most 
profitably  matured  policy  in  the  history  of  life 
insurance.  In  a  second  instance,  five  officers  of  a 
corporation  were  insured  under  ten-year  term  pol- 
icies. I  induced  one  of  them  to  take  a  ten-year 
endowment,  under  a  similar  arrangement.  On  an- 
other occasion,  one  of  three  partners  availed  him- 
self of  the  plan.  The  scheme  involves  a  fair  gamble, 
of  a  kind  likely  to  attract  an  unmarried  man  or  one 
of  ample  means. 

Joint  Versus  Separate  Policies 

An  erroneous  and  injurious  idea  prevails  among 
life  insurance  agents  that  joint  policies  are  the  ap- 
propriate forms  for  Business  Insurance.  Joint  pol- 
icies should  be  written  only  when  the  concern  is 
unable  to  pay  for  the  amount  of  insurance  required 
under  separate  policies. 

The  chief  objection  to  joint  policies  is  that,  no 
matter  how  many  or  how  few  lives  may  be  involved, 
the  contract  expires  with  the  death  of  one  of  the 
insured  and  the  payment  of  one  claim.  It  frequently 
happens  that  the  survivors  have  great  need  for  con- 
tinued protection.  At  best,  they  can  secure  it  only 
by  obtaining  new  insurance,  necessarily  at  higher 
rates.  But  it  may  be  that  one  or  more  of  the  orig- 
inal lives  has  become  impaired  and  ineligible  for 
insurance.     Cases  of  very  serious  injury  have  been 


136         BUSINESS  INSURANCE  INSTRUCTOR 

wrought  upon  business  concerns  by  agents  placing 
joint  insurance  where  separate  poHcies  might  quite 
as  readily  have  been  written. 

Another  disadvantage  of  joint  insurance  is  that 
the  rejection  of  one  risk  nullifies  the  application,  and 
the  agent  generally  finds  it  impossible  to  revive  the 
negotiation  on  the  basis  of  separate  policies.  But 
when  these  have  been  applied  for  in  the  first  in- 
stance, it  is  less  difficult  to  place  them  with  the 
insurable  members  of  the  group. 

Joint  insurance  is  seldom  taken  by  corporations, 
unless  of  the  "close"  character.  In  case  of  the  re- 
tirement of  a  member  or  the  dissolution  of  a  firm 
which  is  covered  by  a  joint  policy,  adjustment  of 
the  insurance  interests  is  more  difficult  and  less  sat- 
isfactory than  in  a  case  where  separate  policies  are 
carried.  Under  the  former  circumstances  most  com- 
panies will  reissue  the  insurance  on  separate  forms, 
but  the  individual  policies  will  be  for  much  smaller 
amounts  than  that  of  the  original  contract. 

In  every  respect,  save  that  of  larger  premium  out- 
lay, separate  policies  are  preferable  to  joint  forms 
for  Business  Insurance.  The  additional  cost  is, 
however,  more  than  offset  by  the  increased  protec- 
tion and  the  proportionately  larger  cash  and  loan 
values.  If  the  agent  will  take  the  trouble  to  work 
out  a  few  comparative  illustrations,  he  cannot  fail 
to  reach  the  conviction  that  there  is  only  one  con- 
dition which  will  justify  him  in  recommending  joint 
policies  of  Business  Insurance — that  is,  when  the 
concern  cannot  afford  to  pay  the  premiums  for 
an  adequate  amount  of  insurance  under  separate 
policies. 

By  far  the  majority  of  needs  for  Business  Insur- 


BUSINESS  INSURANCE  INSTRUCTOR         137 

ance  will  be  served  by  ordinary  life  and  endowment 
policies.  When  provision  for  indemnity  in  the  event 
of  death  is  the  sole  desideratum,  the  former  is  the 
appropriate  form.  When  the  chief  purpose  is  to 
create  a  sinking  fund,  the  latter  form  must  neces- 
sarily be  taken.  Departures  from  these  rules  will 
be  justified  by  certain  conditions,  of  which  notice 
will  be  taken  hereafter,  and  by  the  entertainment  of 
a  secondary  purpose  by  the  applicant. 

The  actuating  motive  with  large  corporations  is 
generally  to  cover  a  valuable  life.  Occasionally  the 
insurance  taken  in  such  a  case  is  endowment,  with 
a  view  to  furnishing  a  retiring  bonus  or  pension  for 
the  person  in  question.  Corporations  carry  endow- 
ment insurance  as  a  means  of  redeeming  bonds,  pro- 
viding a  fund  for  taking  care  of  the  depreciation  of 
the  plant  and  equipment,  as  well  as  to  facilitate  the 
discharge  of  specific  deferred  liabilities.  Under  all 
conditions  the  death  indemnity  is  more  or  less  of  a 
consideration,  otherwise  the  proposition  would  not 
compare  favorably  with  a  purely  financial  funding 
arrangement. 

Variety  of  Forms  May  Be  Used  in  Small  Cases 

The  need  of  large  co-partnerships  for  Business 
Insurance  are  similar  in  great  measure  to  those  of 
corporations.  With  small  firms  there  is  rarely 
necessity  nor  ability  to  create  a  substantial  sinking 
fund.  The  chief  need  is  usually  to  provide  an  ofifset 
to  the  consequence  of  death.  This  can  be  most 
economically  eflfected  through  ordinary  life  insur- 
ance, but  considerable  latitude  as  to  form  is  justifi- 
able in  writing  such  concerns. 

The  small  concern  of  limited  means  and  restricted 


138         BUSINESS  INSURANCE  INSTRUCTOR 

opportunities  for  investment  may  wisely  consider 
various  secondary  purposes.  The  amount  of  insur- 
ance taken  will  be  moderate,  and  any  excess  of 
premium  over  that  of  ordinary  life  could  hardly 
represent  a  sum  that  would  make  any  appreciable 
difference  in  the  working  capital.  Young  men  often 
have  a  predilection  for  Endowment  or  Limited  Pay- 
ment insurance.  Either  form  may  wisely  be  taken 
by  partners  in  a  modest  business.  It  is  more  than 
probable  that  the  substantial  loan  values  will  serve 
business  purposes  on  more  than  one  critical  occa- 
sion during  the  course  of  the  policies. 

In  the  case  of  a  small  firm,  any  Business  Insur- 
ance that  may  be  taken  will  embrace  domestic  pro- 
tection to  a  considerable  degree,  because  the  part- 
ners will  generally  be  depending  upon  the  business 
for  the  ultimate  support  of  th-eir  families.  Under 
such  circumstances,  any  of  the  ordinary  forms  of 
contract  may  be  written  appropriately.  Even  in- 
come insurance  is  not  an  exception  to  this  state- 
ment. Let  us  suppose  that  two  partners  desire  to 
provide  for  the  discharge  of  the  interest  of  the 
widow  of  either  in  case  of  death.  The  object  can  be 
served  as  well  by  monthly  income  policies  as  by  any 
other  form.  It  is  advisable,  however,  that  the 
method  of  settlement  should  be  covered  by  a  definite 
agreement,  in  which  the  wives  should  join. 

There  is  a  class  of  cases  to  which  limited  install- 
ment insurance  usually  applies.  It  not  infrequently 
happens  that  a  man  retires  from  a  business  under  an 
agreement  that  his  interest  shall  be  acquired  by  a 
partner,  employe,  or  several  such  persons,  in  con- 
sideration of  paying  to  him  a  certain  sum  for  a 
stipulated  number  of  years.     The  sale  is  generally 


BUSINESS  INSURANCE  INSTRUCTOR         139 

made  on  the  terms  in  question  because  the  pur- 
chasers lack  means  of  paying  in  a  lump  sum.  Under 
the  circumstances,  if  the  latter  should  die  before 
completing  the  payments,  it  is  improbable  that  their 
estates  would  be  able  to  continue  the  payments.  In 
order  to  safeguard  the  equities  of  purchasers  in  such 
arrangements,  insurance  should  be  taken  on  their 
lives,  payable  to  the  retiring  member  in  the  required 
annual  amounts.  Obviously,  only  in  the  event  of 
the  insured's  death  in  the  first  policy  year  would  the 
entire  insurance  be  needed  for  the  primary  purpose, 
so  that  a  specific  secondary  purpose  might  be  served 
by  it.  If  necessary,  such  insurance  could  be  written 
on  the  reducing  plan,  so  that  it  would  exactly  cover 
the  liability  at  all  times  and  expire  when  the  last 
payment  of  purchase  price  should  be  made. 

When  there  is  any  likelihood  of  the  insurance  be- 
ing assigned,  it  should  be  issued  in  broken  amounts. 
Failure  to  take  this  precaution  sometimes  entails 
serious  inconvenience.  A  policy  may  be  tied  up  as 
security  for  a  comparatively  small  loan,  when  half 
the  amount  of  insurance  would  have  served  the  pur- 
pose and  the  balance,  in  another  policy,  could  have 
been  similarly  employed  elsewhere. 

Many  cases  will  arise  in  which  Business  Insur- 
ance should  be  accompanied  by  a  subsidiary  agree- 
ment as  to  the  disposition  of  the  proceeds  of  claims. 
The  agent  should  be  prepared  to  suggest  the  terms 
of  such  agreements  and  to  draft  them  in  the  rough. 
The  final  document  should  invariably  be  drawn  by  a 
lawyer.  In  a  matter  of  such  importance  it  is  dan- 
gerous for  the  agent  to  trust  to  his  own  knowledge, 
no  matter  how  extensive.     On  the  other  hand,  his 


140         BUSINESS  INSURANCE  INSTRUCTOR 

knowledge  of  insurance  contracts  and  procedure 
may  be  of  great  service  to  the  legal  adviser. 

What  has  been  said  regarding  small  firms  applies 
with  greater  force  to  one-man  concerns  and  private 
individuals.  In  such  cases  secondary  purposes  will 
almost  invariably  be  contemplated.  For  example, 
the  sole  proprietor,  who  is  taking  insurance  to  pro- 
tect a  supply  house,  will  be  wise  to  consider  the 
ultimate  service  of  the  policy  in  protecting  his  fam- 
ily or  providing  for  his  old  age.  There  are  numer- 
ous less  obvious  calculations  that  might  prompt  the 
agent  to  deviate,  in  such  cases,  from  the  rule  to 
recommend  ordinary  life  insurance  as  a  provision 
for  death  indemnity. 

In  their  private  capacity,  individuals  frequently 
find  need  for  Business  Insurance.  It  may  be  taken 
to  secure  creditors,  to  discharge  mortgages,  to  cover 
speculative  ventures,  and  to  liquidate  various  liabil- 
ities. The  agent's  advice  as  to  forms  should  con- 
form to  the  best  interests  of  the  applicant.  The 
former  may  suggest  secondary  purposes  when  the 
prospect  appears  to  overlook  them.  For  instance,  a 
physician  desires  to  cover  a  mortgage  on  his  home 
and  is  disposed  to  take  an  ordinary  life  policy  for 
the  purpose.  His  attention  should  be  drawn  to  the 
value  of  an  endowment  as  serving  the  double  pur- 
pose of  protecting  the  mortgage  and,  after  it  is  paid 
off,  of  creating  a  fund  for  his  support  in  later  years. 


TABLOID  ARGUMENTS  FOR  BUSINESS 
INSURANCE 

1.  It  secures  indemnity  for  the  most  valuable 
business  asset — personal  ability,  brains,  experience, 
technical  knowledge,  and  the  rest. 

2.  It  provides  means  of  discharging  the  claims 
of  a  deceased  partner's  estate  against  the  firm  of 
which  he  was  a  member. 

3.  It  protects  creditors,  endorsers  of  paper,  and 
financial  backers. 

4.  It  stabilizes  business  by  enhancing  bank  and 
trade  credits. 

5.  It  is  a  certain  and  economical  method  of  cre- 
ating a  sinking  fund. 

6.  It  is  a  definite  provision  for  depreciation  of 
plant  and  replacement  of  equipment. 

7.  It  affords  ready  cash,  through  policy  loans 
and  matured  values,  for  expansion  of  operations, 
meeting  unexpected  demands  and  other  needs. 

8.  It  is  adapted  to  meet  various  liabilities,  espe- 
cially matured  bonds. 

9.  It  facilitates  the  floating  of  stocks  and  bonds. 

10.  It  is  an  effective  medium  for  conserving  the 
control  in  close  corporations. 

11.  It  facilitates  the  retirement  of  members  of 
firms. 

12.  It  enables  minority  holders  in  close  corpora- 
tions and  partnerships  to  acquire  larger  interests. 

13.  It  is  the  best  provision   the  individual   can 


142         BUSINESS  INSURANCE  INSTRUCTOR 

make,  as  a  rule,  for  the  discharge  of  mortgages, 
estate  and  inheritance  taxes. 

14.  It  is  almost  indispensable  to  the  perpetuation 
or  profitable  liquidation  of  one-man  concerns. 

15.  It  has  frequently  relieved  concerns  from 
financial  embarrassment,  and  even  bankruptcy, 
through  the  resource  of  its  loan  values. 

16.  It  is  a  strengthening  factor  in  new  organiza- 
tions, consolidations  and  reorganizations. 

17.  It  is  a  convenient  and  economical  provision 
for  pensioning  valued  employes,  in  the  event  of  per- 
manent disability  or  superannuation. 

18.  It  enables  individuals  to  make  charitable  be- 
quests which  would  otherwise  be  beyond  their 
means. 

19.  It  facilitates  the  operations  of  the  farmer  and 
relieves  his  personal  insurance  of  the  charge  of 
debts. 

20.  It  can  be  usefully  employed  by  every  business 
concern  in  the  solution  of  one  or  another  of  its 
internal  problems. 

These  are  mere  suggestions  that  might  be  ex- 
tended almost  without  limit.  They  should  suffice  to 
afford  clues  to  many  prospects.  The  agent  is  ad- 
vised to  read  one  of  the  tabloids  and  then  to  ask 
himself:  "What  concerns  with  which  I  am  ac- 
quainted would  find  Business  Insurance  especially 
useful  in  this  connection?"  Or,  already  having  a 
particular  prospect  in  view,  let  the  agent  run  over 
the  tabloids  with  the  object  of  determining  which  of 
them  suggest  points  for  strengthening  his  presen- 
tation. 


EXPRESSIONS  OF  BANKERS  REGARDING 
BUSINESS  INSURANCE 

BANKS  are  becoming  more  and  more  impressed 
with  the  importance  of  providing  against  ad- 
verse business  contingencies,  and  in  making 
loans  to  corporations,  partnerships  and  other  busi- 
ness enterprises  they  now  find  it  desirable  to  make 
specific  inquiry  as  to  whether  the  lives  of  the  prin- 
cipal members  of  the  borrowing  concern  have  been 
insured.  The  importance  of  this  can  be  judged  by 
the  fact  that  the  Federal  Reserve  System  has  caused 
an  inquiry  regarding  life  insurance  to  be  inserted  in 
its  regular  statement  form."— J.  M.  Henderson,  Jr., 
President  Sacramento-San  Joaquin  Bank,  Sacra- 
mento, Calif. 

"Few  features  of  a  business  statement  give  us 
more  satisfaction  than  one  showing  a  line  of  life 
msurance  for  the  protection  of  the  business,  and  it 
always  adds  to  the  credit  of  the  customers  seeking 
accommodation."— H.  P.  Hilliard,  President  Central 
National  Bank,  St.  Louis,  Mo. 

"It  is  a  good  safeguard  in  case  of  death  and  at 
other  times  a  concern  might  be  saved  from  suffering 
by  this  resource.  In  our  opinion,  insurance  of  this 
kind  (Business  Insurance)  benefits  the  credit  and 
financial  standing  of  those  adopting  it." — Walker 
Hill,  President  Mechanics-American  Bank,  St. 
Louis,  Mo. 

"Financial  institutions  in  extending  credit  to  cus- 
tomers make  it  a  point  to  see  that  all  material  prop- 
erty is  covered  by  fire  insurance,  and  I  fail  to  see 
why  insurance  on  the  lives  of  the  main  factors  in  a 


144         BUSINESS  INSURANCE  INSTRUCTOR 

firm  or  corporation  would  not  be  as  valuable  to  the 
bank  or  mercTiant  extending  credit.  I  am  heartily 
in  favor  of  this  form  of  protection." — W.  L.  Peel, 
President  American  National  Bank,  Atlanta,  Ga. 

"Business  Insurance  should  commend  itself  to  the 
management  of  every  corporation  the  success  of 
which  is  dependent  upon  the  lives  of  certain  indi- 
viduals; and  this  we  know  is  true  in  many  cases. 
Such  insurance  improves  the  credit  by  insuring 
stability,  indemnifying  the  concern  in  case  of  loss 
of  valued  members  of  its  management.  As  the  cash 
values  of  such  policies  increase  year  by  year,  they 
form  a  sinking  fund  for  the  benefit  of  the  concern, 
and  become  an  additional  resource  in  the  event  of 
financial  depression." — F.  L.  Lipman,  Vice-Presi- 
dent Wells-Fargo  National  Bank,  San  Francisco, 
Calif. 

"Individual,  partnership  or  corporation  Business 
Insurance  tends  largely  to  strengthen  the  credit  of 
a  business.  It  guards  against  the  sudden  removal  of 
one  of  the  important  factors  in  the  business,  and 
means  ready  money  to  meet  any  demands  caused  by 
such  a  contingency.  It  is  always  a  valuable  asset  on 
a  business  statement." — W.  J.  Blalock,  President 
Fulton  National  Bank,  Atlanta,  Ga. 

"From  the  standpoint  of  a  firm  or  corporation  we 
believe  that  Business  Insurance  would  in  many 
cases  prove  valuable,  offsetting  to  the  extent  of  the 
amount  of  it  carried  any  depletion  of  capital  that 
might  occur  through  the  death  of  a  member  of  a 
firm  and  affording  a  direct  money  benefit  to  corpo- 
rations in  the  event  of  the  death  of  officers  or  stock- 
holders who  by  their  endorsements  or  otherwise  had 
strengthened  the  credit  of  the  company." — James  B. 


BUSINESS  INSURANCE  INSTRUCTOR         145 

Forgan,  President  First  National  Bank,  Chicago,  111. 

"I  am  of  the  opinion  that  prudent  men  engaged  in 
every  line  of  business,  whether  as  individuals,  firms 
or  corporations,  should  carry  as  business  protection 
a  sufficient  amount  of  life  insurance  not  only  to 
cover  any  indebtedness  that  may  now  exist  or  which 
death  may  bring  about  by  reason  of  incompleted 
business  ventures,  but  also  such  as  will  add  to  the 
estate  as  much  as  possible." — W.  L.  English,  Presi- 
dent Fourth  National  Bank,  Atlanta,  Ga. 

"In  the  case  of  a  company  that  depends  to  a  large 
extent  upon  the  management  and  ability  of  one,  or 
even  two,  persons,  we  believe  that  it  adds  decidedly 
to  the  credit  of  the  concern  to  carry  life  insurance 
for  the  benefit  of  their  company  or  firm ;  further 
than  this,  we  believe  that  if  a  bank  were  loaning  to 
any  considerable  extent  to  a  company  that  depended 
largely  upon  the  ability  of  one  or  two  individuals,  it 
should  insist  upon  having  a  proper  amount  of  insur- 
ance taken  out." — Allan  Forbes,  President  State 
Street  Trust  Co.,  Boston,  Mass. 

"I  have  always  felt  that  insurance  designed  to 
protect  business  from  the  losses  resulting  when  im- 
portant persons  in  the  business  are  removed  is 
essentially  sound  and  of  the  greatest  importance." — ■ 
W.  H.  Booth,  Vice-President  Security  Trust  and 
Savings  Bank,  Los  Angeles,  Calif, 

"We  regard  with  great  favor  the  steadily  growing 
practice  of  placing  a  substantial  amount  of  insurance 
upon  the  life  of  the  active  and  aggressive  partners  in 
a  firm  or  officers  in  a  corporation.  In  fact,  the  more 
important  a  man  is  to  his  concern  the  more  satisfac- 
tion a  creditor  derives  from  learning  that  coincident 
with  the  irreparable  loss  caused  by  his  death  there 


146         BUSINESS  INSURANCE  INSTRUCTOR 

will  be  a  payment  of  a  large  sum  in  cash  into  the 
treasury  of  the  concern." — W.  A.  Law,  Vice-Presi- 
dent First  National  Bank,  Philadelphia,  Pa. 

"The  carrying  of  Business  Insurance  is  an  element 
of  strength  for  the  credit  of  a  firm  or  corporation 
which  will  not  be  overlooked  by  the  banker  when 
called  upon  to  finance  the  concern,  I  would  urge  all 
corporations  and  firms  to  carry  this  form  of  life 
insurance." — J.  A.  McCord,  Vice-President  Third 
National  Bank,  Atlanta,  Ga. 

*T  am  a  strong  advocate  of  partnership  and  cor- 
poration life  insurance.  I  believe  that  business  con- 
cerns should  take  the  precaution  of  insuring  the 
lives  of  those  on  whom  they  are  particularly  de- 
pendent for  management.  In  a  number  of  instances 
where  this  plan  has  been  adopted,  during  the  past 
few  years,  it  has  materially  increased  the  credit  and 
standing  of  the  concerns  affected." — J.  M.  Elliott, 
President  First  National  Bank,  Los  Angeles,  Calif. 

"When  a  man  comes  to  us  to  borrow  money  we 
want  to  know  how  much  life  insurance  he  carries." 
— A.  Barton  Hepburn,  President  Chase  National 
Bank,  New  York  City. 

"We  regard  life  insurance  as  a  necessary  addition 
to  the  intangible  assets  of  any  business." — R.  H. 
Hemphill,  Manager  Federal  Reserve  Bank,  Atlanta, 
Ga. 

"We  consider  business  life  insurance  as  the  most 
desirable  as  collateral  when  credit  is  being  sought." 
— H.  W.  Bowman,  President  Springfield  National 
Bank,  Springfield,  Mass. 

"Paper  presented  by  a  company  that  carries  Busi- 
ness Insurance  is  just  that  much  more  acceptable 
than  the  paper  of  one  that  does  not." — C.  M.  Sawyer, 


BUSINESS  INSURANCE  INSTRUCTOR         147 

Governor  Federal  Reserve  Bank,  Kansas  City,  Mo. 

"We  know  that  life  insurance  is  an  excellent  safe- 
guard ;  we  are  constantly  recommending  it  to  our 
borrowers." — J.  Adam  Brown,  President  New  Neth- 
erland  Bank,  New  York  City. 

"Harriman  National  Bank  makes  it  a  practice  not 
only  to  make  inquiry  regarding  life  insurance,  but 
also  urges  it  both  for  personal  and  business  pur- 
poses."— J.  W.  Harriman,  President  Harriman  Na- 
tional Bank,  New  York  City. 

"Frankly,  if  the  average  business  man  asking 
credit  would  consider  his  life  insurance  with  the 
same  regard  that  he  does  his  fire  insurance,  less 
business  troubles  would  occur." — G.  C.  Van  Tuyl, 
Jr.,  President  Metropolitan  Trust  Co.,  New  York 
City. 

"Business  Insurance  strengthens  the  credit  of  the 
concerns  that  carry  it.  The  increased  confidence 
that  it  creates  is  recognized  in  the  mercantile  com- 
munity and  thus  reflected  through  our  reports." — 
C.  F.  Clark,  late  President  Bradstreet's  Mercantile 
Agency. 


SKELETON  PROPOSITION  TO  COVER  THE 
LIFE  OF  AN  EMPLOYE 

FORM  of  Policy.  Endowment,  20,  25,  30  or  35 
years,  regulated  to  mature  at  about  age  65. 
Plan.  Monthly  income  to  provide  pension  at 
the  end  of  the  policy  period.  Commuted  value  to 
be  paid  to  the  employer  concern  in  case  of  insured's 
death  w^ithin  the  policy  period.  In  case  a  satisfac- 
tory amount  of  monthly  income  should  not  yield 
the  desired  amount  of  indemnity  for  death,  an  ordi- 
nary life  policy  may  be  added  to  make  up  the 
deficiency. 

Provision  for  Disablement.  The  policy  should 
embrace  the  permanent  total  disability  feature,  to 
cover  the  hazard  of  loss  of  services,  plus  a  probable 
expenditure  for  the  aid  of  the  employe. 

This  form  of  proposition  will  appeal  to  many  cor- 
porations. It  is  quite  likely  that  in  a  considerable 
proportion  of  instances  where  ordinary  life  is  taken 
upon  the  life  of  an  employe,  the  alternative  coverage 
described  would  be  adopted,  if  suggested  by  the 
agent. 


ENDOWMENT  POLICY  EMPLOYED  AS 
SINKING  FUND 

"HEN  the  proposition  is  to  use  endowment 
insurance  as  a  substitute  for  the  ordinary- 
sinking-  fund,  it  -will  generally  be  advisable 
to  employ  a  comparative  illustration.  The  following 
is  a  suggested  method  of  setting  forth  the  data : 

It  is  assumed  that  the  primary  object  is  the  re- 
demption of  $100,000  of  bonds,  maturing-  in  twenty 
years  and  that  it  is  also  desirable  to  cover  a  valuable 
life  with  insurance.  A  twenty-year  endowment  pol- 
icy of  $100,000  is  placed  on  a  man  aged  35,  although 
the  insurance  may  be  distributed  over  several  lives, 
in  which  event  the  comparative  statement  must  be 
worked  out  for  each  case. 

Column  1.  Gross  premium. 

Column  2.  Probable  dividend. 

Column  3.  Total  net  deposits. 

Column  4.  Profit  in  case  of  death. 

Column  5.    Sinking    fund,    beginning    with    $28,800 
and  improved  at  5  per  cent  annually. 

Column  6.    Difference  between  insurance  and  sink- 
ing fund  accounts  in  case  of  death. 

At  the  end  of  the  period,  the  two  accounts  will 
necessarily  balance. 


SPECIMEN  MERCANTILE  AGENCY  REPORT 

LEE  &  PRATT,  Building  Contractors  and  Con- 
sulting Engineers. 

The  firm  is  composed  of  Edgar  E.  Lee  (mar- 
ried, aged  45),  Thomas  S.  Pratt  (married,  aged  42), 
and  Perrin  I.  Hudson  (married,  aged  36).  The  last 
named  has  little  more  than  a  nominal  interest,  but 
draws  a  salary  of  $20,000  a  year  as  manager  of  the 
business,  the  success  of  which  is  said  to  be  largely- 
due  to  his  ability. 

This  partnership  was  formed  by  the  senior  mem- 
bers in  1906.  Hudson's  connection  with  it  is  of  five 
years'  duration.  It  began  in  a  modest  way,  but  has 
become  very  prosperous,  especially  in  recent  years. 
The  concern  has  constructed  a  number  of  large 
buildings  in  this  city  and  now  has  in  hand  the  fol- 
lowing, besides  many  comparatively  small  con- 
tracts: Adamson  Building,  $1,700,000;  Elks'  Club, 
$800,000;  Normal  School,  $1,600,000;  Buell  Opera 
House,  $1,350,000;  Shepard  Building,  $675,000.  Some 
of  these  contracts  are  made  on  the  cost  plus  fixed 
fee,  others  on  the  lump  sum  basis. 

Edgar  Lee  furnished  the  following  typewritten, 
but  unsigned,  statement  of  the  firm's  affairs  as  of 
Decem.ber  31,  1921 : 

ASSETS  (cents  omitted) 

Cash  in  banks $     7,214 

Cash  in  hand 3,647 

Accounts  receivable  (construction  work 

in  progress) 182,533 

Portions  of  fees  earned  on  uncompleted 

buildings 18,500 


BUSINESS  INSURANCE  INSTRUCTOR         151 

Book  accounts 8,161 

Real  estate 137,460 

Equipment 85,000 

Office  furniture  and  fixtures      ....  4,200 

Inventories,  material  on  hand      .     .     .  8,720 

Total $455,435 

LIABILITIES 

Bills  payable  to  banks $113,700 

Accounts  payable,  not  yet  due     .     .     .     101,412 

Mortgages,  not  yet  due 64,000 

Taxes,  not  yet  due 1,740 

Bills  payable  to  others 7,576 

Total $288,428 

Net  worth 167,007 

Fees  to  mature  within  12  months,  less 

estimated  expenses 250,000 

Total $417,007 

Personal  assets  of  E.  E.  Lee  and  T.  S.  Pratt,  con- 
sisting of  real  estate,  stocks,  bonds  and  various  per- 
sonal property,  are  said  to  amount  to  upwards  of 
$200,000. 

The  concern  operates  extensively  in  real  estate, 
buying  and  selling  with  good  results,  as  a  rule. 
Their  holdings  are  usually  mortgaged  to  the  limit, 
probably  to  facilitate  extensive  operations.  At  pres- 
ent they  have  a  number  of  lots  in  scattered  sections 
of  the  city,  mostly  well  located. 

At  times  the  firm  makes  large  advances  to  clients 
in  order  to  assist  in  financing  building  operations. 
They  have  a  considerable  sum  owing  to  them  on  a 


152         BUSINESS  INSURANCE  INSTRUCTOR 

large  building  which  they  erected  some  time  ago  on 
Rhodes  Avenue  and  have  filed  a  lien  on  the  prop- 
erty. It  is  possible  that  they  may  come  out  of  this 
transaction  without  serious  loss,  but  it  ties  up  a  con- 
siderable amount,  meanwhile. 

Lee  &  Pratt  are  both  shrewd  men,  energetic,  of 
good  business  ability,  and  they  bear  a  good  general 
reputation.  They  are  reported  to  take  care  of  their 
current  obligations  promptly.  They  have  the  use  of 
a  liberal  line  of  accommodations  in  financial  quar- 
ters and  are  regarded  good  for  their  reasonable 
requirements. 

The  foregoing  is  almost  a  literal  reproduction  of  a 
genuine  mercantile  agency  report.  The  most  sig- 
nificant features,  from  our  point  of  view,  have  been 
italicized.  Now,  let  us  jot  down  memoranda,  just  as 
we  would  if  we  were  considering  the  data  with  the 
purpose  of  formulating  a  proposition  for  Business 
Insurance. 

Memoranda 

Partners  (Hudson  need  not  be  considered  in  this 
connection)  both  married.  In  absence  of  agreement 
to  contrary,  widow  of  either  might  make  demand 
upon  survivor  for  cash  settlement  of  former  hus- 
band's interest. 

Hudson's  ability  evidently  very  valuable  asset. 
Firm's  greatest  prosperity  coincident  with  his  con- 
nection. On  basis  of  his  salary,  his  present  worth 
to  concern  about  $250,000.  (See  method  of  calcula- 
tion, page  68.) 

Hudson  should  be  good  prospect  for  personal  in- 
surance. Others  are  to  be  sounded  in  this  respect, 
after  disposition  of  Business  Insurance  proposition. 

Speculative  ventures  in  real  estate  and  incidental 


BUSINESS  INSURANCE  INSTRUCTOR         153 

mortgages  are  to  be  noted.  Firm  takes  risks  in 
lending  to  clients  and  recent  unfavorable  experience 
must  make  them  appreciative  of  fact. 

Concern  always  has  large  contract  operations  on 
hand,  necessitating  extensive  financing  and  ready 
resources.  Usual  risks  of  lump  sum  contracts  not 
to  be  overlooked. 

Cash  in  banks  and  in  hand  is  negligible  quantity 
and  other  assets  show  only  questionable  resources 
in  case  of  emergency.  On  the  other  hand,  liabilities 
to  banks  are  probably  represented  by  short-time 
notes. 

Review  of  financial  statement  indicates  really  dan- 
gerous condition.  Sudden  death  of  either  of  the 
three  partners  would  doubtless  embarrass  the  firm 
seriously.  In  all  probability  credits  would  be  cur- 
tailed and  claims  pressed.  In  almost  total  absence 
of  quick  or  liquid  assets,  concern  would  have  to 
abandon  profitable  contracts  and,  perhaps,  wind  up 
its  business.  This  is  the  big  point  to  impress  on 
them. 

As  a  minor  consideration,  sinking  fund  should  be 
established  to  provide  for  depreciation  of  equipment 
and  discharge  of  mortgages. 

Not  improbable  that  Lee  &  Pratt  are  depending  to 
some  extent  on  personal  resources  to  supply  cash  in 
case  of  emergency,  but  it  is  poor  policy  and  some- 
times disastrous  to  domestic  interests  to  make  one's 
estate  bear  risks  of  one's  business. 

Proposition 

That  Lee  &  Pratt  should  each  take  $100,000  of 
ordinary  life  insurance,  payable  to  the  other,  under 
a  special  agreement  as  to  its  disposition. 


154         BUSINESS  INSURANCE  INSTRUCTOR 

That  the  firm  should  place  $200,000  ordinary  life 
insurance  on  the  life  of  its  manager,  Hudson. 

That  $25,000  of  ten-year  endowment  should  be 
carried  as  a  sinking  fund  to  meet  deferred  liabilities. 

As  a  matter  of  fact,  the  firm  was  written  a  few 
months  ago  for  $100,000  of  ordinary  life  on  each  of 
the  senior  members  and  $150,000  of  the  same  form 
on  Hudson.  The  endowment  is  now  under  consid- 
eration and  Hudson  has  applied  for  a  $250  monthly 
income  policy  in  favor  of  his  wife. 

Without  the  mercantile  agency  report  on  which 
the  agent  formulated  his  proposition,  it  is  practically 
certain  that  he  would  not  have  secured  anything  like 
the  above  amount  of  insurance  and,  perhaps,  would 
have  failed  to  close  the  case. 


FEDERAL  TAXES  IN  RELATION  TO 
BUSINESS  INSURANCE 

PROCEEDS  of  Life  Insurance  Policies.  Under 
the  provisions  of  the  Revenue  Act  of  1918,  the 
proceeds  of  life  insurance  policies,  when  pay- 
able to  corporations,  were  included  in  the  corpora- 
tion's gross  income  and  were  subject  to  an  income 
tax  of  12  per  cent  in  1918  and  10  per  cent  in  sub- 
sequent years.  In  addition  to  the  income  tax,  such 
proceeds  of  life  insurance  policies  were  subject,  in 
certain  cases,  to  the  excess  profits  tax. 

A  radical  change  was  effected  by  the  Revenue  Act 
of  1921.  Section  233  of  that  instrument  provides: 
(a)  "that  in  case  of  a  corporation  subject  to  the  tax 
imposed  by  Section  230,  the  term  'gross  income' 
means  the  gross  income  as  described  in  Sections  213 
and  217,"  Section  213  refers  to  individuals  and  pro- 
vides that  the  following  items  shall  be  excluded 
from  gross  income :  (a)  the  proceeds  of  life  insur- 
ance paid  upon  the  death  of  the  insured  to  individual 
beneficiaries  or  to  the  estate  of  the  insured;  (b)  the 
amount  received  by  the  insured  as  a  return  of  pre- 
mium or  premiums  paid  by  him  under  life  insurance, 
endowment  or  annuity  contracts,  either  during  the 
term  or  at  the  maturity  of  the  term  mentioned  in  the 
contract  or  upon  surrender  of  the  contract. 

Therefore,  so  far  as  Federal  income  taxes  are  con- 
cerned, the  proceeds  of  life  insurance  policies,  when 
they  now  become  payable  to  corporations,  are  placed 
upon  the  same  basis  as  when  payable  to  individuals, 
and  are  not  included  in  gross  income. 

Without  a  doubt,  this  amendment  in  the  law  will 


156         BUSINESS  INSURANCE  INSTRUCTOR 

result  in  Business  Insurance  being  taken  by  many 
corporations  that  have  been  restrained  by  the  for- 
mer impost  on  the  proceeds.  This  worked  extreme 
hardship  in  some  instances.  A  case  is  on  record  of  a 
corporation  collecting  a  claim  of  $30,000  under  a  life 
insurance  policy  and  by  reason  of  that  addition  to 
its  gross  income  being  placed  in  a  higher  class  for 
excess  profits  taxation.  This  occasioned  an  addition 
to  the  tax  charge  of  $35,000,  so  that  the  company 
actually  lost  $5,000  by  receiving  the  proceeds  of  the 
insurance  policy.  The  exemption  described  above 
applies  to  firms  and  one-man  concerns. 

Premiums — When  Deductible.  When  a  business 
concern  pays  premiums  on  a  policy  on  the  life  of  an 
officer,  employe  or  individual  financially  interested 
in  the  concern's  business,  for  the  purpose  of  protect- 
ing itself  from  loss  in  the  event  of  the  death  of 
any  such  person,  the  premiums  are  not  deductible 
from  gross  income.  But  if  the  concern  is  not  a  bene- 
ficiary under  the  policy,  except  as  it  may  derive 
advantage  from  the  increased  efficiency  of  the  em- 
ploye, and  pays  the  premiums  purely  as  reasonable 
additional  compensation  of  such  employe,  they  are 
allowable  deductions.  The  proceeds  of  such  policies 
paid  upon  the  death  of  the  insured  may  be  excluded 
from  gross  income  if  the  beneficiary  is  an  individual, 
but  must  be  included  in  the  gross  income  if  the 
beneficiary  is  a  corporation.  (In  this  connection  see 
following  paragraph.) 

Partnerships  Classed  as  Individuals.  On  the  rec- 
ommendation of  the  Tax  Advisory  Board,  the  ex- 
emption allowed  to  individuals  was  extended  to 
include  the  proceeds  of  life  insurance  when  paid  to 


BUSINESS  INSURANCE  INSTRUCTOR         157 

partnerships,  on  the  theory  that  in  the  ordinary  case 
where  the  Hfe  of  a  member  of  a  firm  is  insured  his 
death  dissolves  the  partnership  and  the  survivors 
receive  the  proceeds  of  the  insurance  pohcy  as 
individuals. 

Corporations  May  Not  Deduct  Premiums.  Cor- 
porations are  not  included  in  the  exemption  referred 
to  in  the  preceding  paragraph,  and  may  not  deduct 
premiums  paid  on  Business  Insurance  from  gross 
income. 

If  a  corporation  pays  the  premium  on  an  individ- 
ual life  insurance  policy  carried  on  the  life  of  one  of 
its  officers  or  employes  v^ho  is  permitted  to  desig- 
nate the  beneficiary  and  in  which  the  corporation  is 
not  in  any  way  a  beneficiary  (see  following  para- 
graph, Group  Insurance),  premiums  so  paid  will,  in 
the  absence  of  satisfactory  evidence  to  the  contrary, 
be  presumed  to  constitute  taxable  income  to  such 
officer  or  employe.     (Treasury  Ruling  1128.) 

Creditor  Business  Insurance.  If  a  creditor  takes 
out  a  life  insurance  policy  on  an  individual  to  cover 
loans  to  the  individual  or  indebtedness  otherwise 
incurred,  the  creditor  may,  while  the  indebtedness  is 
existent,  deduct  from  gross  income  as  a  necessary 
expense  the  amount  of  the  premiums  paid  during 
the  year  for  which  the  return  is  made.  On  the  same 
principle,  it  has  been  ruled  that  when  a  firm  or  indi- 
vidual carries  life  insurance  specifically  for  the  pro- 
tection of  a  creditor  and  the  creditor  is  named  as 
beneficiary  under  the  policy  contract,  the  premiums 
may  be  treated  as  a  legitimate  business  expense  and 
be  exempted  from  taxation  as  gross  income. 


158         BUSINESS  INSURANCE  INSTRUCTOR 

Partnership  Health  Insurance,  Premiums  paid  by 
a  firm  for  accident  and  health  insurance  covering  the 
individual  partners  are  not  deductible  from  the 
gross  income  of  the  concern. 

Premiums  paid  by  an  employer  firm  on  life,  acci- 
dent or  health  policies  in  favor  of  its  employees  as 
additional  compensation  for  such  employees  are  in- 
come to  the  employees.  (See  paragraph,  "Corpora- 
tions may  not  deduct  premiums.") 

Charitable  Institutions  as  Beneficiaries.  Premiums 
paid  on  life  insurance  are  allowable  deductions  from 
gross  income  when  the  beneficiary  is  a  charitable 
institution  exempt  from  taxation,  provided  the  bene- 
ficiary named  cannot  be  changed  at  the  will  of  the 
insured  and  the  sum  of  the  annual  premuims,  plus 
other  allowable  charitable  contributions,  does  not 
exceed  15  per  cent  of  the  taxpayer's  net  income. 

Pensions  and  Disability  Compensation.  Amounts 
paid  for  pensions  to  retired  employes  or  to  their  de- 
pendents, or  on  account  of  injuries  sustained  by 
employes,  and  lump  sum  amounts  paid  as  compensa- 
tion for  injuries,  are  allowable  deductions  as  neces- 
sary expenses.  Such  deductions  are  limited  to  the 
amount  not  compensated  for  by  insurance  or  other- 
wise.    (Regulation  45,  Article  108.) 

Group  Insurance.  Premiums  paid  by  an  employer 
on  policies  of  group  insurance  covering  the  lives  of 
employees,  under  which  financial  benefits  can  accrue 
only  to  the  beneficiaries  designated  by  the  em- 
ployees, do  not  constitute  taxable  income  to  the 
employees  whose  lives  are  insured. 


BUSINESS  INSURANCE  INSTRUCTOR         159 

Income  Insurance.  Amounts  received  by  an  indi- 
vidual beneficiary  or  by  the  estate  of  the  insured 
under  an  instalhnent  contract  of  life  insurance  are 
exempt  from  taxation.  This  applies  to  the  install- 
ment payments  and  to  any  dividends  received  under 
the  contract. 

Insurance  as  Surplus  and  Invested  Capital.  Only 
the  cash  surrender  value  of  policies  derivable  from 
premiums  paid  in  prior  years  which  have  not  been 
deducted  as  an  expense  can  be  included  in  surplus. 

The  cash  surrender  value  of  a  life  insurance  policy 
which  constitutes  surplus  as  of  the  beginning  of  the 
taxable  year  for  invested  capital  purposes  retains  its 
character  as  surplus  even  though  the  policy  consti- 
tuting the  admissible  asset  upon  the  basis  of  which 
the  surplus  was  determined  is  terminated  and  paid. 

In  case  a  corporation  beneficiary  has  deducted 
from  gross  income  only  a  portion  of  the  premiums 
paid  in  prior  years  on  insurance  policies  on  the  lives 
of  its  officers  or  employees,  it  may  include  in  its 
invested  capital  for  the  taxable  year  the  same  pro- 
portion of  the  cash  surrender  values  of  the  policies 
on  January  1,  1917,  that  the  premiums  paid  and  not 
deducted  from  gross  income  bear  to  the  total  pre- 
miums paid  to  that  date.  The  computation  of  this 
portion  relates  only  to  premiums  applicable  to  the 
years  prior  to  January  1,  1917,  and  cannot  be  made 
with  respect  to  any  premiums  paid  subsequently, 
for  the  reason  that  under  the  Revenue  Acts  of  1917 
and  1918  premiums  paid  by  a  beneficiary  corporation 
on  the  lives  of  its  officers  or  employes  are  not  allow- 
able deductions  from  gross  income. 

If  all  premiums  paid  prior  to  1917  have  been  de- 


160         BUSINESS  INSURANCE  INSTRUCTOR 

ducted  from  gross  income,  only  the  increase  in  the 
cash  surrender  values  of  the  policies  from  January  1, 
1917,  to  the  beginning  of  the  taxable  year  may  be 
included  in  invested  capital.     (Article  846.) 


ESTATE  AND  INHERITANCE  TAXES 

BUSINESS  INSURANCE  is  commonly  taken  to 
provide  for  the  taxes  upon  estates.  These  are 
entirely  separate  and  distinct  from  the  income 
tax.  The  Federal  impost  is  termed  an  Estate  Tax. 
It  is  collected  from  the  net  estate  before  distribution 
and  is  a  first  lien  against  it.  The  Federal  estate  tax 
is  not  deductible  in  computing  the  income  of  estates 
for  the  purpose  of  taxes. 

The  Revenue  Act  of  1918  provides  that  in  the 
value  of  the  "gross  estate  of  the  decedent  there  must 
be  included  "The  amount  receivable  by  the  executor 
as  insurance  under  policies  taken  out  by  the  dece- 
dent upon  his  own  life;  and  to  the  extent  of  the 
excess  over  $40,000  of  the  amount  receivable  by  all 
other  beneficiaries  as  insurance  under  policies  taken 
out  by  the  decedent  upon  his  own  life." 

The  taxable  insurance  is  (a)  all  insurance  payable 
to  the  estate;  (b)  insurance  payable  to  individual 
beneficiaries  to  the  extent  that  it,  together  with 
other  taxable  insurance  payable  to  the  estate,  ex- 
ceeds $40,000.  Insurance  is  deemed  to  have  been 
taken  out  by  the  decedent  in  all  cases  where  he  paid 
the  premiums,  directly  or  indirectly.  Where  the 
premiums  were  paid  by  some  other  person,  firm  or 
corporation,  not  out  of  money  belonging  to  or  ad- 
vanced by  decedent,  the  insurance  should  not  be 
included  in  the  estate. 

Assigned  Policies.  Where  the  decedent  has  as- 
signed a  policy  and  thereafter  retained  no  interest 
in  it  and  paid  no  part  of  the  premiums,  the  insurance 


162         BUSINESS  INSURANCE  INSTRUCTOR 

will  not  be  considered   in  calculating  the  amount 
entitled  to  exemption. 

State  Inheritance  Taxes.  The  Federal  estate  tax 
is  distinct  from  the  inheritance  tax  imposed  by 
almost  every  State.  The  former  is  imposed  on  the 
entire  net  estate  and  not  upon  the  distributive 
shares.  State  inheritance  taxes  are  not  deductible 
from  the  gross  estate  in  computing  the  net  estate 
subject  to  Federal  tax. 

Insurance  Payable  to  the  Estate.  All  proceeds  of 
insurance  received  by  the  executor  are  to  be  in- 
cluded in  the  gross  estate.  This  applies  to  policies 
payable  to  decedent's  estate  or  to  his  executor  or 
administrator,  and  all  insurance  which  is  in  fact 
receivable  by  the  estate,  or  which  must  be  used  to 
pay  charges  against  the  estate  or  to  cover  costs  of 
administration ;  it  includes  insurance  to  provide 
funds  to  pay  the  estate  tax,  inheritance  tax,  or  other 
legal  charges  upon  the  estate.  (Regulation  37, 
Article  33.) 

Valuation  of  Insurance.  The  amount  of  any  policy 
to  be  returned  is  the  amount  of  the  proceeds  actually 
received  by  the  executor  or  beneficiary.  Where  the 
proceeds  are  payable  as  an  annuity  for  life  or  a  term 
of  years,  the  present  worth  of  the  annuity  at  the 
time  of  death  must  be  included  in  the  gross  estate. 

Where  the  insurance  contract  grants  an  option  to 
receive  a  lump  sum  in  lieu  of  the  annuity,  this  sum, 
if  accepted,  will  represent  the  value  of  the  insurance 
for  purposes  of  taxation.  Where  there  is  more  than 
one  option,  and  none  of  them  is  convertible,  the 
value  of  the  insurance  will  be  calculated  in  accord- 
ance with  the  option  which  is  exercised. 


BUSINESS  INSURANCE  INSTRUCTOR         163 

The  agent  who  purposes  speciaHzing  in  Business 
Insurance  for  the  purpose  of  meeting  the  estate  and 
inheritance  taxes  must  post  himself  fully  on  the  sub- 
ject. The  taxes  of  States  vary  considerably  in 
amount  and  in  the  regulations  governing  them.  All 
the  necessary  information  may  be  acquired  from  the 
Inheritance  Tax  Service  of  Prentice-Hall,  New  York 
City. 


BUSINESS  INSURANCE  FORM  LETTERS 

TWO  sets  of  form  letters  follow.  One  is  de- 
signed for  use  in  connection  with  corporations, 
the  other  in  connection  with  co-partnerships. 

The  form  letter  which  has  the  appearance  and 
character  of  a  circular  is  of  little  value. 

Each  of  the  Business  Insurance  letters  should  be 
typed  separately  and  signed  by  hand.  In  order  to 
increase  the  impression  of  individual  communica- 
tions, they  are  so  phrased  that  the  name  of  the  cor- 
poration or  firm  addressed  may  be  inserted  without 
change  in  the  general  wording. 

This  method  involves  considerable  time  and  trou- 
ble, but  experience  has  shown  that  one  hundred  let- 
ters prepared  in  this  manner  will  produce  better 
results  than  one  thousand  produced  by  the  multi- 
graph  or  other  duplicating  process. 

The  series  of  letters  is  framed  on  the  principle 
that  governs  homeopathy.  The  small  doses,  deliv- 
ered at  short  intervals,  are  readily  swallowed  and 
easily  digested.  Cumulative  effect,  with  all  its  well- 
known  advantages,  is  secured.  It  is  recommended 
that  the  letters  be  mailed  so  that  one  will  be  received 
on  each  Monday  and  Wednesday  of  three  consecu- 
tive weeks. 

A  return  card  and  return  unstamped  envelope 
should  be  enclosed  with  each  letter.  Not  more  than 
5  per  cent  of  replies  should  be  looked  for.  The 
greater  proportion  of  results  will  accrue  from  the 
canvass,  for  which  the  letters  are  an  excellent  intro- 


BUSINESS  INSURANCE  INSTRUCTOR         165 

duction.  The  follow-up  should  be  commenced  three 
days  after  the  second  letter  has  been  received. 

Good  men  following  one  hundred  letters  of  this 
kind,  judiciously  addressed,  can  hardly  fail  to  secure 
ten  live  prospects  and  interest  a  number  of  others. 
It  may  be  added  that  it  is  advisable,  for  several  rea- 
sons, to  select  the  names  from  a  list  of  concerns  in 
the  same  line  of  business. 

Immediately  that  it  is  determined  to  institute  a 
canvass,  a  mercantile  report  should  be  obtained  and 
studied,  preparatory  to  the  first  interview. 

Corporation  Letters 

Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works. 
Dear  Sir: 

Doubtless  the  Ribstone  Engine  Works  carries 
fire,  liability  and  other  forms  of  insurance.  Has  it 
covered  its  most  valuable  asset — the  combination  of 
brains,  experience  and  ability  upon  which  its  pros- 
persity  depends? 

Life  insurance  is  the  business  buttress  that  main- 
tains stability  in  time  of  stress. 

Yours  truly, 
Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works, 
Dear  Sir: 

Every  corporation  may  find  in  Business  Insurance 
a  solution  to  one  or  another  of  its  internal  problems. 
It  is  a  source  of  relief  in  all  manner  of  adverse 
contingencies. 

Life  insurance  is  the  anchor  to  windward  that  has 
saved  many  a  corporation  from  wreck. 
Yours  truly, 


166         BUSINESS  INSURANCE  INSTRUCTOR 

Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works. 
Dear  Sir: 

Business  Insurance,  taken  with  the  primary  pur- 
pose of  providing  indemnity  for  the  loss  of  a  valu- 
able life,  is  not  idle  in  the  meanwhile.  Its  constantly 
enlarging  loan  credit  creates  an  emergency  reserve 
that  is  immediately  available  in  time  of  need. 

Business  Insurance  is  a  reliable  support  when 
other  resources  fail. 

Yours  truly, 
Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works. 
Dear  Sir: 

The  Ribstone  Engine  Works  might  find  Business 
Insurance  an  economical  and  profitable  medium  for 
creating  a  sinking  fund  to  discharge  deferred  liabil- 
ities, repair  plant  and  replace  equipment. 

Business  Insurance  furnishes  cash  without  pub- 
licity and  at  a  moderate  rate  of  interest. 

Yours  truly, 
Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works. 
Dear  Sir: 

The  conserving  quality  of  Business  Insurance  is 
not  limited  to  its  function  of  indemnifying  for  loss 
of  life.  The  mercantile  and  banking  credit  of  a  con- 
cern is  enhanced  by  it.  Many  a  company  has  been 
enabled  to  survive  financial  stress  by  loans  against 
life  insurance. 

Business  Insurance  is  the  ultimate  safeguard  of 
creditors. 

Yours  truly, 


BUSINESS  INSURANCE  INSTRUCTOR         167 

Mr.  J.  W.  Simpson,  President 
Ribstone  Engine  Works. 
Dear  Sir : 

I  have  addressed  to  you  several  letters,  briefly 
calling  attention  to  a  few  of  the  numerous  advan- 
tages of  Business  Insurance.  If  the  Ribstone  Engine 
Works  does  not  carry  this  form  of  protection,  it  can 
only  be  because  Business  Insurance  has  never  been 
adequately  presented  to  your  company. 

I  shall  seek  an  early  opportunity  to  discuss  the 
subject  with  you,  confident  of  my  ability  to  indicate 
directions  in  which  Business  Insurance  may  be 
made  to  serve  the  interests  of  the  Ribstone  Engine 
Works. 

Yours  truly, 


Firm  Letters 

Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs : 

If  you  could  take  into  your  business  an  associate 
who,  whilst  asking  no  voice  in  the  management, 
would  stand  ready  to  guarantee  you  indemnity  for 
the  death  of  a  member  of  your  firm,  who  would 
stand  ready  to  lend  money  in  time  of  need,  who 
would  hold  a  constantly  growing  reserve  fund  to 
your  credit,  you  would  promptly  accept  the  offer. 

Business  Insurance  is  the  silent  partner  that  will 
do  all  this  and  more. 

Yours  truly, 


168       .  BUSINESS  INSURANCE  INSTRUCTOR 

Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs : 

It  is  safe  to  assume  that  Johns  &  Pettie  carry  fire, 
liabiHty,  burglary  and  other  forms  of  insurance,  but 
has  it  provided  for  the  most  severe  loss  that  could 
befall  the  firm — the  premature  death  of  one  of  its 
members? 

Business  Insurance  w^ill  enable  you  to  meet  the 
claims  of  a  deceased  partner's  estate  without  draw- 
ing on  working  capital.  It  will  act  as  a  shock  ab- 
sorber in  minimizing  the  loss  of  his  services  and  as 
an  aid  in  repairing  your  organization. 

Yours  truly, 

Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs : 

An  officer  of  one  of  our  leading  mercantile  agen- 
cies declared  that  "During  the  past  decade  Business 
Insurance  would  have  saved  more  than  one  million 
employers  from  sinking  back  into  the  ranks  of  the 
employed."  The  head  of  another  mercantile  agency 
has  said  :  "Over  80  per  cent  of  failures  among  firms 
are  due  to  deaths  for  which  no  provision  has  been 
made." 

Business  Insurance  involves  domestic  insurance. 
Upon  the  prosperity  of  the  business  depends,  more 
or  less,  the  preservation  of  the  homes  of  employers, 
employees,  and  creditors. 

Yours  truly, 


BUSINESS  INSURANCE  INSTRUCTOR         169 

Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs : 

Business  Insurance  enhances  credit  and  estab- 
Hshes  a  reputation  for  conservative  methods.  Mer- 
cantile agencies  include  Business  Insurance  in  their 
reports,  and  banks  take  account  of  it  in  their 
deaHngs. 

The  treasurer  and  credit  man  of  one  of  our  largest 
vt^holesale  houses  has  said  :  "In  this  day  of  commer- 
cial operations  on  narrow  margins,  any  serious  re- 
verse, and  especially  death,  is  apt  to  result  in  failure 
or  liquidation.  Life  insurance  will  soon  be  required 
of  all  concerns  asking  for  extensive  credit." 

Yours  truly, 


Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs  : 

Business  Insurance  will  not  only  protect  the  most 
valuable  asset  of  Johns  &  Pettie— the  man  material 
upon  which  its  prosperity  depends — but  will  also 
create  a  tangible  reserve  and  a  fund  immediately 
available  in  emergency. 

During  the  last  financial  panic  more  than  $75,000,- 
000  was  borrowed  by  business  houses  on  the  col- 
lateral security  of  their  life  insurance  policies,  saving 
many  from  serious  embarrassment,  if  not  actual 
bankruptcy. 

Yours  truly, 


170         BUSINESS  INSURANCE  INSTRUCTOR 

Messrs.  Johns  &  Pettie, 
Lumber  Dealers. 
Dear  Sirs : 

I  have  addressed  to  you  several  letters,  briefly- 
calling  attention  to  a  few  of  the  numerous  advan- 
tages of  Business  Insurance.  If  Johns  &  Pettie  do 
not  carry  this  form  of  protection,  it  can  only  be 
because  Business  Insurance  has  never  been  ade- 
quately presented  to  your  firm. 

I  shall  seek  an  early  opportunity  to  discuss  the 
subject  with  you,  confident  of  my  ability  to  indicate 
directions  in  which  Business  Insurance  may  be 
made  to  serve  the  interests  of  your  concern. 

Yours  truly, 


BUSINESS  INSURANCE  INSTRUCTOR         171 

SECTION  FOUR 
Test  Questions 

31.  What  are  the  chief  qualifications  for  selHng 
Business  Insurance? 

32.  Wherein  does  the  value  of  the  mercantile 
agency  report  consist? 

33.  Is  it  feasible  for  an  agent  to  write  Business 
Insurance  without  special  qualifications? 

34.  Briefly  state  the  arguments  against  the  use  of 
term  policies  for  Business  Insurance  purposes? 

35.  What  are  the  principal  uses  of  Business  Insur- 
ance on  the  endowment  form  to  corporations, 
firms  and  individuals,  respectively? 

36.  Two  young  married  men  run  a  garage  and  sup- 
ply store  in  which  each  has  $12,000  invested. 
The  business  nets  from  $8,000  to  $10,000  a  year. 
Each  of  the  partners  carries  $3,000  of  personal 
insurance,  and  both  recently  purchased  homes 
which  are  to  be  paid  for  at  the  rate  of  $50  a 
month  for  ten  years.  What  form  of  Business 
Insurance  would  you  recommend  to  them  and 
on  what  grounds? 

37.  D  is  a  corporation  which  desires  to  protect  itself 
against  the  loss  that  would  be  entailed  by  the 
death  of  its  general  manager,  and  proposes  to 
place  ordinary  life  insurance  upon  him.  Would 
you  suggest  any  modification  of  the  plan? 

38.  A  proposition  is  briefly  stated  in  connection 
with   the   mercantile   report  on   Lee   &   Pratt. 


172         BUSINESS  INSURANCE  INSTRUCTOR 

Enumerate  the  principal  purposes  that  will  be 
served  by  the  suggested  insurance. 

39.  The  Revenue  Act  of  1921  effects  an  important 
change  in  the  taxation  of  life  insurance  carried 
by  corporations.    What  is  it? 

40.  A  firm  takes  out  Business  Insurance  for  the 
specific  protection  of  a  creditor.  May  the  for- 
mer deduct  the  amount  of  premiums  from  gross 
income  in  making  tax  return? 


BUSINESS  INSURANCE  INSTRUCTOR         173 

SECTION  FOUR 

Answers  to  Test  Questions 

31.    Knowledge  of  common  business  practices  and 
methods  of  financing,  together  with  an  under- 
standing of  Business  Insurance.    Without  such 
knowledge  and  understanding,  an  agent  will  be 
unable  to  apply  Business  Insurance  to  the  solu- 
tion of  various  business  problems. 
^2.    The   mercantile  agency   report  furnishes   data 
concerning  the  affairs  of  a  business  concern  that 
can  rarely  be  obtained  from  any  other  source. 
It  affords  a  reliable  basis  for  the  formulation  of 
a  proposition  of  Business   Insurance.     It  fre- 
quently discloses  good  prospects  for  individual 
or  personal  insurance. 

^^-  It  is  quite  practicable  for  an  agent  without  spe- 
cial qualifications  to  write  Business  Insurance 
extensively  among  the  numerous  class  of  con- 
cerns operating  in  a  small  way.  with  meager 
capital.  These  cases  seldom  involve  other  con- 
siderations than  the  consequences  of  death  and 
the  enhancement  of  credit.  The  canvass  is  sim- 
ple and  the  prospects  easy  to  approach. 

34.  After  six  or  seven  years  the  net  cost  under  term 
insurance  will  be  greater  than  under  ordinary 
life.  The  absence  of  surrender  values  seriously 
diminishes  the  value  of  a  term  policy  as  security. 

35.  Corporations  employ  endowment  insurance  to 
create  sinking  funds  for  the  retirement  of  bonds 
and  the  discharge  of  various  deferred  liabilities; 
It  is  also  effective  as  a  provision  for  future  pen- 


174         BUSINESS  INSURANCE  INSTRUCTOR 

sions.  Firms  may  find  endowment  insurance 
valuable  as  a  means  of  facilitating  retirement 
and  meeting  future  obligations.  To  the  indi- 
vidual this  form  is  to  be  recommended  chiefly 
for  the  purpose  of  paying  off  a  mortgage. 

36.  The  primary  object  of  the  partners  should  be  to 
provide  for  indemnity  in  case  of  the  death  of 
either,  and  $10,000  on  each  life  would  be  a  rea- 
sonable amount.  The  settlement  of  the  claim 
should  be  arranged  so  as  to  serve  the  needs  of 
domestic  protection.  This  may  be  done  by 
writing  the  policies  on  the  ordinary  life  contin- 
uous income  plan,  $60  a  month,  which  will  take 
care  of  any  unpaid  installments  on  the  home 
and  supplement  the  income  derivable  from  the 
$3,000  of  personal  insurance. 

37.  In  such  circumstances  the  more  extensive  util- 
ity of  endowment  insurance  should  always  be 
explained.  It  will  enable  the  company  to  pro- 
vide for  retirement  of  its  manager  on  pension. 
The  contract  may  be  written  so  as  to  pay  a 
lump  sum  to  the  employer  concern  in  case  of  its 
becoming  a  death  claim,  and  monthly  install- 
ments to  the  contingent  beneficiary  (the  man- 
ager) in  case  of  his  outliving  the  stipulated 
term.  Permanent  total  disability  should  be 
provided  for  in  whatever  form  of  insurance  is 
taken. 

38.  The  two  policies  of  $100,000  will  furnish  ready 
cash  to  meet  the  immediate  demands  upon  the 
firm  in  case  of  a  partner's  death.  These  are 
liable  to  be  made  by  his  estate,  by  creditors  and 


BUSINESS  INSURANCE  INSTRUCTOR         175 

banks.  The  money  will  also  offset  possible 
curtailment  of  credit.  Meanwhile  the  insur- 
ance will  increase  the  security  of  banks  and 
other  creditors,  thereby  enhancing  the  concern's 
credit.  It  will  aid  a  surviving  partner  in  the 
purchase  of  the  deceased's  interest.  At  some 
future  time  the  loan  values  may  be  a  valuable 
resource. 

The  insurance  on  Hudson  will  indemnify  for 
the  loss  of  his  services  and  make  it  much  easier 
than  otherwise  to  replace  them.  The  policy 
might  ultimately  be  useful  in  retiring  Hudson. 

The  endowment  would  provide  for  discharge 
of  mortgages  and  replacement  of  equipment,  as 
well  as  other  purposes.  Its  heavy  loan  values 
would  create  a  valuable  quick  asset. 

There  are  several  other  benefits  that  might 
accrue  to  the  firm  from  carrying  this  insurance. 
The  student  is  advised  to  search  for  them. 

39.  The  Revenue  Act  of  1921  exempts  the  proceeds 
of  life  insurance  carried  by  corporations  from 
inclusion  in  gross  income,  a  change  which  is 
certain  to  result  in  Business  Insurance  being 
taken  more  extensively  by  concerns  that  were 
adversely  affected  in  this  respect  by  the  former 
Income  Tax  Law. 

40.  The  premiums  outlaid  in  such  a  case  are  deemed 
to  be  a  legitimate  business  expense  and  may  be 
deducted  from  gross  income,  so  long  as  the 
indebtedness  exists  and  the  policy  remains  pay- 
able to  the  creditors. 

In  like  manner,  a  creditor  carrying  insurance 
on  the  life  of  a  debtor  may  deduct  the  premiums 
from  gross  income. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 

AN  INITIAL  FINE^OF  25  CENTS 

W.LL  BE  ASSESSED  FOR  FAILURE  TO  R^URN 
THIS  BOOK  ON  THE  DATE  DUE.  ^HE  P^INAUTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
dIy  and  to  $1.00  ON  THE  SEVENTH  DAY 
OVERDUE. 


JiM  26  1934 


m 


LD  21-100m-7,'33 


^21T)UU 


-J   iT-r-V-e-^ 


UNIVERSITY  OF  CAUFORNIA  UBRARY 


